Competitive forces have been on the decline in Canada at the same time as profits and price markups are on the rise, a new report from the Competition Bureau finds.
Canada’s competition watchdog on Thursday released a comprehensive look at the country’s competitive landscape between 2000 and 2020.
It found that “competitive intensity” — a metric for how hard businesses feel they need to compete against rivals in their industry — faced “a consistent and clear decline” over the period.
“When firms have to compete aggressively against their rivals, they face pressure to keep their prices low. So we don’t expect them to earn substantially higher profits,” the report read.
But the bureau found that profits rose widely in Canada over those two decades, as did price markups — the measure of how much more a business is charging for a product compared with how much it costs to produce it.
Profits rose the most in industries that already saw higher profits, and the case was the same for markups, according to the report, which relied on Statistics Canada data.
The Competition Bureau’s report came with a number of caveats and other reasons that could inflate prices aside from a lack of fierce competition, but said an increase in markups “could indicate a decline in the intensity of competition firms face.”
Canada’s most concentrated sectors became more concentrated over those 20 years, according to the analysis. The bureau also found that top firms in these sectors were less likely to be challenged by upstarts or existing smaller players in the industry.
The first-of-its-kind report from the bureau spoke about competition in Canadian industries in generalized terms, and did not single out any particular sector as an egregious offender.
But a number of industries in Canada, including telecom, air travel, banking and groceries, have long been identified by observers as sectors experiencing relatively higher levels of concentration.
A separate Competition Bureau probe into Canada’s grocery sector in June identified a number of measures to promote competitive forces in the industry that could help “bring grocery prices in check” in the long term.
The Liberal government has proposed an update to the Competition Act in the form of Bill C-56 amid efforts to limit price pressures in Canada after more than a year of rampant inflation. These include new powers for the competition watchdog to compel information from the subjects of its investigations and changes to how merger review is handled in Canada.
Industry Minister Francois-Philippe Champagne told Global News on Thursday that the Liberals’ affordability bill is “the answer” to concerns about competition in Canada.
He said changes to the Competition Act will give the bureau “more tools in the toolbox” to improve competitive intensity in Canada.
“The real answer to affordability is to create more competitive pressure,” Champagne said.
“What we want is more competition, less consolidation and lower prices. And this is across industries.”
A senior official with the Competition Bureau told reporters on a technical briefing for the report on Thursday that the watchdog was “particularly encouraged” by the proposed changes to the legislation.
“(Our findings) show how essential it is to modernize Canada’s competition laws to respond to the realities of today’s economy. And they highlight why it is important to implement pro-competitive public policies that do not shelter industries from healthy competition,” the Oct. 19 report concluded.
— with files from Global News’ David Akin
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