The annualJack Layton Prize for a Better Canadain partnership with the Douglas-Coldwell-Layton Foundation is a essay competition for McGill graduate students. This year’s winning essay, titled “Invisible Hand, Visible Impact – Unlocking the Role of Competition and Reducing Inequality,” penned by MPP studentsChloe Aboud and Sean Celi, underscores the pressing need for policies that foster competition within the Canadian economy.
Expensive airfares that prohibit Canadians from seeing dying loved ones, high grocery prices that force Canadians to skip meals, and the ability of firms within the same industry to simultaneously cut the pay of Canadian employees are just some of the grim socioeconomic realities caused by lack of competition.
Adam Smith posited that the price mechanism functions as an invisible hand, orchestrating market transactions and allocating resources with efficiency. However, beneath this hand lies a vital force: competition. While the price mechanism serves as the guiding principle, competition propels its operation and sustains economic dynamism. When considering the benefits of competition, lower prices and innovation are oft-cited, yet its profound impact in reducing social and economic inequality is overlooked.
Competition policy and socioeconomic inequality are intrinsically linked. Equality considerations must be directly integrated within evaluation of anti-competitive behaviors, necessitating an expansion of competition laws to encompass targets for reducing inequality. This can be seen in South Africa, where competition legislation aligns explicitly with constitutional imperatives for affirmative action, empowering historically disadvantaged groups.
Across diverse jurisdictions such as the European Union, Indonesia, South Korea, and Taiwan, competition laws aim to promote fairness, protect public interest, and enhance economic welfare. This is in contrast to Canada’s Competition Act where direct terminology like fairness is not included, focusing instead on efficiency, competitive prices, and product choices. While these provisions may not directly address inequality, they offer a framework for competition agencies to consider broader societal concerns when evaluating mergers. Consequently, measures that exacerbate inequality could face regulatory scrutiny, while those that tackle it may receive support. The failure of Canada’s competition policies to address inequality is evident in the growing corporate concentration in the country.
High concentration in Canada’s key markets
One commonly used metric that shows the amount of corporate concentration in an industry is the Herfindahl Hirschman Index (HHI), which ranges from 0 to 10,000; a market with an HHI of less than 1,500 is considered a competitive marketplace, an HHI of 1,500 to 2,500 is moderately concentrated, and an HHI of 2,500 or greater is highly concentrated. In Canada, the average HHI has increased since 2002. The HHI of the top 10% most concentrated industries rose by 8.6% from 2,818 in 2005 to 3,060 in 2018. This signals a trend of increasing corporate concentration, especially in already highly concentrated industries.
The four-firm concentration ratio (CR4) is another measure of corporate concentration. CR4 measures the combined market share of the four largest firms. In early 2019, Canada’s telecom industry had a CR4 ratio of 100% in every region except Ottawa, which means Rogers, Bell, Telus, and Freedom Mobile made up 100% of the market in almost the entire country. AfterRogers’ acquisition of Freedom in 2019, 94.7% of the Canadian telecom market belonged to only three companies.
Figure 1: Market Share of Telecoms in Canada (Source: Canadian Media Concentration Research Project)
Canada’s grocery sector is also highly concentrated, with a CR4 ratio of 68%. Most Canadians shop in one of Loblaws, Sobeys, or Metro, with each company having more than 1,000 stores across Canada. Contributing to the growing concentration of the grocery sector is rapid consolidation in the industry. In 1986, there were eight major grocery chains in Canada. In the last two decades, five of them have been bought by today’s grocery giants. Loblaws acquired Provigo in 1998, T&T Supermarket in 2009, and Shoppers Drug Mart in 2013. Similarly, Sobeys acquired IGA in 1998, Safeway Canada in 2013, and Farm Boy in 2018. The result is an illusion of choice: Canadians are likely getting their skincare products, snacks, and fresh produce from the same parent company, despite shopping at different stores (see Figure 1).
Figure 2: Consolidation of the Grocery Sector (Source: Competition Bureau)
Other industries related to the food supply chain are also increasingly concentrated. The food service industry has also become more concentrated. With mergers like Burger King’s acquisition of Tim Hortonsand Swiss Chalet’s acquisition of The Keg, the proportion of independent restaurants declined from 62% in 2011 to just 47% in 2023.
Less discussed but equally alarming evidence of corporate concentration is the national decline in new businesses. As highlighted by the Business Development Bank of Canada, the numberof entrepreneurs has declined by 100,000 in 20 years, despite the Canadian population growing by more than 10 million over the same timeframe. Figure 2 shows that exit rates have overtaken entry rates in the past decades, which is a sign that there are fewer new competitors that are willing to challenge the stronghold of big players.
Figure 3: Business Entry and Exit Rates in Canada (Source: Statistics Canada)
Examining the potential impact of competition policy on consumers’ reliance on infrastructure, product accessibility, and income inequality is crucial for understanding how solutions can be more encompassing to economic and social equality.
Risk of overreliance
High corporate concentration, where a few major players dominate an industry, can create dangerous over-reliance where consumers and businesses become dependent on these giants. The Rogers network outage in 2022 illustrates such danger. As one of the largest telecommunications providers, the widespread outage crippled phone, internet, and emergency services for close to 10 million Canadians. Interac was taken offline, rendering businesses nationwide unable to accept debit card transactions. Citizens were unable to access 911 services via mobile phones on the Rogers network. Public transport agencies encountered computer system issues, while government services such as the Canada Revenue Agency were impacted. This highlights the risk: if one company controls a significant portion of the economy’sinfrastructure, a single point of failure can have a cascading effect, disrupting essential services and causing economic hardship. The pervasive impact of corporate concentration on daily life and economic activity becomes blatantly clear.
Reduced choice and accessibility concerns
Corporate concentration significantly exacerbates inequality, and this can be seen in Canada’s transportation sector. Companies like Air Canada and VIA Rail dominating the industry leads to consumers facing limited options and higher prices for travel services. This lack of competition disproportionately affects marginalized communities, and those in remote or underserved regions who rely heavily on transportation services for healthcare, education, and employment opportunities. As dominant firms prioritize profitable routes and services, they may neglect less lucrative routes or regions, leaving communities isolated and underserved. Additionally, higher transportation costs create financial barriers for low-income individuals and families, limiting their mobility and access to essential services. The concentration of power in the transportation sector leaves additional room for exploitation, as firms can set unreasonably high prices when they know consumers have no or limited choice. Not only are limited choices leading to higher prices, but they may even be creating long-term harms by hindering access to employment, healthcare, and education for underserved populations.
Food insecurity
The growing concentration in the grocery and food service sectors correlates with the growing food insecurity of Canadians, which, in this context, refers to the inadequate or insecure access to food due to financial constraints. In 2004, 9.2% of Canadian families were food insecure. Now, 18% of Canadian families experience this phenomenon. Furthermore, the majority of food insecure families in 2004 were below the poverty line, whereas the majority of food insecure families in 2022 were above it, suggesting that the cost of food is increasing more rapidly than wages. This becomes difficult to accept when paired with Competition Bureau’s findings that Canada’s largest groceries have increased their gross margins on food in the last five years.
Worse worker conditions
Growing corporate concentration also adversely affects workers. Data on the grocery sector shows that an increase in grocers’ profits occurred concurrently with declining wages. Specifically, grocery workers’ average wage was $21.50/hour in 2020. Two years later, wages fell back to $19.61/hour, even though grocery chains’ profits doubled during the same period. This decline in wages was largely because of Canada’s three largest grocers’ decision to simultaneously cancel the $2-per-hour “hero pay” for frontline workers who kept stores running at the height of the pandemic. ‘The Big Three’s’ coordinated decision to cancel the bonus in June 2020, when Covid cases were continuing to climb, sparked allegations of wage-fixing, as Loblaw’s president admitted talking to competitors before announcing it publicly. In competitive markets, workers could respond to these wage cuts by finding a higher-paying job in the industry. However, in Canada's highly concentrated grocery industry, workers have limited bargaining power.
Concentration in the telecommunications industry has also harmed wages and workers’ conditions. In 2021, Rogers completed its acquisition of Shaw, despite the Competition Bureau’s attempt to block the merger, on the basis of it creating efficiencies that are beneficial to Canadians. Instead, it saw Rogers laying off thousands of workers post-merger, and in 2023, Rogers locked out approximately 300 former Shaw technicians after failed negotiations with the workers’ union. Although worker lay-offs occur in varied settings, sometimes irrespective of concentrated markets, the issue to note here is that cost “efficiencies” as a result of these lay-offs have not translated into lower prices. Early this year, Rogers announced plans to hike the prices of their wireless plans by as high as $9 per month. The merger has therefore not only led to lay-offs, but also higher prices and short term employment insecurity for workers.
Widening income gaps
Lack of competition has also exacerbated income inequality in Canada. 1% of the richest Canadians make almost $180,000 more today than they did in 1982, while the bottom of 90% of Canadians only made $1,700 more during the same period. The Bank of Canada highlighted that growth in top executives’ pay is partly to blame for this. The 100 highest paid CEOs in Canada now make 246 times what the average worker earns–the highest it has ever been.It comes as no surprise that the highest paid CEOs in Canada are those in markets where competition is weak. In 2022, the second highest paid CEO in Canada was the CEO of Durham and Dye, a company accused of breaking Canada’s competition laws; the fourth highest paid was the CEO of Rogers, whose executives received bonuses worth $17 million after their successful acquisition of Shaw. Indeed, empirical studies have shown that lack of competition widens inequality through wage suppression, since it transfers bargaining power from workers to firms.
Solution 1: Empower the Competition Bureau to work for Canadians
Compared to other competition authorities abroad, Canada’s Competition Bureau is limited in its power to stop anticompetitive behaviour. Since its creation in 1986, the Bureau has challenged a merger only 18 times. The Bureau has never won any of those challenges, including the Rogers-Shaw merger that it attempted to block after it found that the acquisition would lessen competition.
Currently, the Bureau has no power to issue orders. All it can do is refer prosecutions of criminal cases to federal courts or make applications for orders to the Competition Tribunal. For instance, in December 2023, the Competition Bureau had to obtain a court order just to start the process of investigating Rogers’ anticompetitive practices. In contrast, the UK’s Competition and Markets Authority has the power to independently compel firms to produce documents needed to conduct an investigation, pause any merger transactions, and enter into premises without any warrant. The Bureau needs a similar level of power for it to work for Canadians. This increased power would not necessarily remove the need for the Competition Tribunal. Just like in the UK, even with the Bureau’s increased powers, businesses would still be able to challenge decisions made by the Bureau by submitting appeals to the Competition Tribunal.
To give the Competition Bureau more teeth, it also needs better funding. In 2023, the Bureau had an operating budget of $67.5 million, equivalent to $1.67 per capita, which is way behind the world’s leading competition authorities. In comparison, the budget of Australia’s competition authority had a per-capita funding of $16.58 in 2023, while New Zealand’s had a per-capita funding of $13.02. Empirical studies have found that when competition authorities’ budgets grow, competition enforcement becomes stronger. When taken with other studies that show that stronger competition enforcement reduces inequality, it is easy to see how a Bureau with stronger enforcement powers can help promote fairness for Canadians.
Solution 2: Prioritize structural remedies to prevent harmful mergers
When it comes to addressing the impacts of a merged entity, there are generally two avenues at our disposal: non-structural or “behavioral” remedies, which target how a merged entity conducts its business, and “structural” remedies, which focus on restoring competition through direct structural changes with measures such as asset divestiture.
To ease the burden on consumers caused by past mergers, the Competition Bureau should prioritize and enforce more structural remedies to reverse the harms created by existing merged entities. Instead of behavioral remedies which are easier to circumvent and require ongoing monitoring, compelling firms to divest certain assets in existing concentrated markets, or as part of requirements for new mergers to go through, is less costly to administer, and provides more certainty and clarity. Strengthening merger reviews with this priority in mind brings a more active effort on the part of authorities, and is a more reliable means to create new competitors, strengthen existing ones, and restore a more competitive landscape.
Although structural remedies are preferred and a best practice internationally, they could be made stricter, and more effective. For example, in 2013, Sobeys sold 23 stores in Western Canada as part of its $5.8-billion acquisition of Safeway, following approval from the Competition Bureau. The Bureau raised concerns about the merger's potential impact on competition in the retail sale of grocery products, prompting Sobeys to agree to sell these stores to address these concerns. Despite the divestitures, Sobeys still gained 190 supermarket locations overall from the Safeway acquisition, begging the question of whether this deal was proportional or effective in maintaining competition in the market. While the sale of these stores could potentially preserve competition by preventing Sobeys from gaining excessive market power in certain local markets, a relatively small number of stores may not fully address the broader competitive concerns raised by the merger.
Solution 3: Reduce barriers to entry to give everyone a fair chance to compete
Tackling lack of competition requires more than changes to the Bureau or the Competition Act. A big reason for the decline in the number of new entrepreneurs in Canada are high barriers to entry in many markets. These include barriers beyond policymakers’ control, such as high capital costs and technological capacity. But these barriers could also be government-imposed regulations. In Canada, businesses must abide by official language regulations, licensing requirements, and restrictions against foreign-owned businesses. Because many of these regulations are imposed by different levels of government, reducing barriers to entry requires a whole-of-government approach. For instance, when it comes to helping businesses meet official language requirements, the Quebec government offers a francization grant to help small and medium-sized businesses overcome the high costs of language requirements. Applying this model on a national scale can significantly reduce barriers to entry for entrepreneurs across the country.
Canada’s most concentrated industries, such as the telecoms industry, have strict federal regulations that restrict the entry of foreign competitors. The outdated Telecommunications Act requires that any telecom entity that represents at least 10% of the market must be owned by a Canadian, and that at least 80% of their board and voting shares must be Canadian. As can be seen through the record-number of customer complaints against telecom companies, the Canadian ownership requirement for telecom companies has not necessarily translated into real benefits for Canadians. Removing the requirement for Canadian ownership, while still maintaining the minimum threshold for Canadian board members and voting shares, will go a long way in encouraging new entrants into the Canadian market.
Towards a fairer tomorrow
88% of Canadians think that it is currently too easy for big businesses to take advantage of consumers and that there thus needs to be more competition in the country. The recommendations highlighted above–a Competition Bureau with stronger enforcement powers, a system that prioritizes structural remedies, and a significant reduction in barriers to entry–can directly address Canadians’ concerns. These recommendations will help reduce inequality as they can expand workers’ bargaining power, increase wages, lower prices, and provide Canadians with more choice over their everyday purchases.
Last year’s amendments to the Competition Act are great signs that Canada is recognizing that its 38-year-old competition policy regime is due for a change. As Canadians demand more competition, the Canadian government must remember that the pursuit of greater competition isn't just a policy imperative—it's a fundamental driver of a thriving, fairer, and equitable society.
