Canada’s declining competition is driving up prices and profits.
Ottawa — A comprehensive analysis conducted by the Competition Bureau has revealed a concerning trend over the past two decades: a significant decline in competitive intensity across the Canadian economy, accompanied by rising profits and markups. The investigation, spanning from 2000 to 2020, utilizes data from Statistics Canada and insights provided by University of Toronto associate professor Matthew Osborne and his team, offering a detailed examination of market dynamics within Canada’s industries. The report’s findings underscore a weakened state of competition, with potentially far-reaching economic implications.
Declining Competitive Intensity: A Two-Decade Trend
The core of the Competition Bureau’s report centers on the demonstrable decrease in competitive intensity observed across a broad range of Canadian industries between 2000 and 2020. This decline isn’t simply a statistical anomaly; it represents a fundamental shift in the economic landscape. Associate Deputy Commissioner Alexa Gendron-O’Donnell, during a media briefing, stated the bureau’s top-line finding: “There has been a concerning decline in competitive intensity across the Canadian economy from 2000 to 2020.” The analysis revealed a notable progression, with the most concentrated industries becoming even more concentrated over the period. This means fewer and fewer companies were vying for dominance in many sectors, ultimately reducing the pressure on businesses to innovate, lower prices, and offer consumers greater choice. The shift toward higher concentration is a critical indicator of a less dynamic and competitive marketplace.
Increasing Concentrations and Market Dominance
Between 2005 and 2018, the number of industries classified as “highly concentrated” dramatically increased, highlighting the consolidation of market power. This wasn’t just a few isolated cases; it was a systemic problem affecting multiple sectors of the Canadian economy. The bureau’s findings suggest a weakening of the forces that promote competition – the disruptive influence of new entrants, the pressure to drive down costs, and the incentive to innovate. The increased concentration reflects a situation where a smaller number of large companies hold a greater share of the market, potentially leading to higher prices and reduced consumer options. This trend has significant implications for Canada’s long-term economic growth and vitality.
Rising Profits and Markups: A Parallel Phenomenon
Alongside the decline in competitive intensity, the report documented a parallel increase in both profits and markups. The average markup across industries rose by 6.7 per cent between 2002 and 2018, while industries identified as having the highest estimated markups experienced an even more substantial increase – a rise of 12.5 per cent. This reinforces the suggestion that decreased competition has allowed businesses to extract greater value from consumers. When competition is weak, firms are better positioned to maintain, and even increase, their profit margins. The significant rise in markups underscores the economic consequences of reduced market dynamism.
Policy Implications and a Call for Action
The Competition Bureau’s report comes at a crucial juncture, coinciding with growing public and policy maker awareness of competition issues. The bureau has been advocating for more pro-competitive policies for some time, but recent attention – fueled by inflation concerns – has amplified the urgency. Deputy Commissioner Anthony Durocher noted that “we have seen that recently the Canadian public and policymakers are beginning to see this area as a priority.” The report’s findings provide a strong justification for a comprehensive overhaul of Canada’s competition law and the implementation of policies designed to invigorate competition. Commissioner Matthew Boswell emphasized the urgency: “Without the adoption of pro-competitive policies, Canada risks continuing down the road of declining competitive intensity. Taking action to increase competition will drive lower prices and make life more affordable for Canadians.” The federal government has recently introduced legislation to amend the Competition Act, suggesting a willingness to address this issue, though the full extent of the changes remains to be seen.
Conclusion: A Needed Reset for the Canadian Economy
Ultimately, the Competition Bureau’s report paints a concerning picture of a Canadian economy struggling with dampened competition and rising market concentration. The increasing profits and markups, coupled with the decline in competitive intensity, suggest a system that is vulnerable to further consolidation and potentially less responsive to consumer needs. The bureau’s call for pro-competitive policies represents a necessary step – a chance to reset the Canadian economy and restore a dynamic, competitive marketplace that benefits all Canadians.
