A recent proposal in the 2014 federal budget to legislate against cross-border price discrimination is profoundly wrong-headed in approach and should not proceed. This is the consensus view of the C.D. Howe Institute’s Competition Policy Council, which held its seventh meeting on April 25th, 2014.
The Competition Policy Council comprises top-ranked academics and practitioners active in the field of competition policy. Chaired by Finn Poschmann, Vice President, Research at the C.D. Howe Institute, the Council provides analysis of emerging competition policy issues. The Council, whose members participate in their personal capacities, convenes a neutral forum to test competing visions of competition policy and share views with practitioners, policymakers and the public.
At the April 25th meeting, the Council addressed the following questions: When is price discrimination economically efficient? when is it not? and when should law and policy seek to prevent it? Is there an economic rationale for preventing price discrimination across borders? If so, is there a way to revise the Competition Act so that it effectively and efficiently addresses cross-border price discrimination?
The Council’s view was that the 2014 federal budget proposal should be abandoned forthwith, on the view that it was on its face wrongheaded and destined for costly failure. It was felt that prohibiting cross-border price differences could have the unintended consequence of limiting choice and increasing costs for Canadian consumers. A move to regulate lower prices in Canada, and its corresponding risk of regulatory overreach and error, could create incentives for foreign suppliers to abandon the Canadian market, or decline to enter competitively, were enforcement action to be threatened over their pricing strategies. The potential requirement to provide cost and sales data, even in the absence of action, would create a barrier to entry by firms hesitant to share commercially sensitive information. Moreover, to require firms to charge the same price in different markets could make prices more rigid, impeding competition, and lead to higher prices everywhere.
More productive potential moves to promote competitive markets, specifically aimed at improving consumer choice and prices, are clear. The federal government should:
Lower or eliminate import tariffs;
Liberalize the producer cartels that are maintained through agricultural supply management and dairy quotas;
Lower other regulatory barriers to internal and external trade in goods and services; and
Facilitate cross-border retail competition by increasing duty-free limits for returning Canadian travelers.
The Council believes that price regulation would be deeply impractical to implement, prove ineffective in achieving its aims, and be costly to government and to business. The Council was clear that the government should not proceed in its misguided initiative and should instead focus its attention on reducing import tariffs, eliminating supply management, and facilitating trade.
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