Niagara falls in prices?

Published On 20/02/2014 | By Susan Zhuang | Consumer protection, Reform

On 11 February 2014, the Canadian government announced plans to introduce legislation to tackle “unjustified” cross-border price discrimination as part of its 2014 federal budget.  The government plans to empower the Commissioner of Competition (and Competition Bureau) to enforce the anti-price discrimination framework, signalling important changes to the Canadian Competition Act.

The proposed reforms are a significant development in Canadian competition policy.  In 2009,  pricing provisions which criminalised price discrimination were repealed as part of a major overhaul of the Competition Act.  Instead, price discrimination and other pricing activities were left to be dealt with as anti-competitive practices in abuse of dominance cases.  Now,  five years later, specific provisions on cross-border price discrimination are set to be introduced.

While the details of the proposed legislation are yet to be announced, and its intended scope and operation is unclear, there are number of important considerations.

First, it will be interesting to see how the framework will identify “unjustified” price discrimination and distinguish it from justified price differentials.  In its Budget document, the Economic Action Plan 2014, the Canadian government indicated that the legislation would target price discrimination that is not justified by higher operating costs in Canada.  This is likely to be a difficult concept for the Competition Bureau and multi-national companies to grapple with, given that exchange rates, taxes and tariffs, labour, transport, safety standards, marketing and relative economies of scale are all relevant factors affecting prices between countries.

Second, it is unclear whether the framework will focus on price discrimination between Canada and the United States only.  In the Economic Action Plan, the Canadian government focused on the higher prices Canadian consumers pay in comparison to their American counterparts, consistent with the 2013 Senate Committee report on “The Canada-USA Price Gap”.   However, a general prohibition on “cross-border” price discrimination could have much wider operation.

Third, the intended subject of the prohibition is unclear.  The Economic Action Plan criticised the use of market power to implement “country pricing strategies” to charge higher prices, identifying “excessive market power” as a cause of higher prices.  It is unclear whether the new legislation will be limited to companies possessing market power, and how the provisions will operate with the existing abuse of dominance provisions.

Finally, it is unclear whether the price discrimination framework will apply at the wholesale level, retail level, or both.  The Economic Action Plan cites a recent study which found that the Canada-US price gap is mostly driven by price increases at the wholesale level, indicating that attention may be focused at the wholesale distributor or supplier level.

Price discrimination – a potential “root and branch” reform topic in Australia?

Canada’s introduction of competition law measures to address cross-border price discrimination is of particular relevance to Australia in the light of the impending “root and branch” review of Australia’s competitions law (the Review) – see our previous posts on the Review here and here.

Previously, the Trade Practices Act 1974 (now the Competition and Consumer Act 2010) did contain a prohibition against some forms of price discrimination, but it was repealed in 1995 on the recommendation of the 1993 Hilmer Committee Report. The Hilmer Committee found that the prohibition (then contained in section 49 of the Act) discouraged competitive pricing and that anti-competitive price discrimination could be dealt with under the misuse of market power and anti-competitive agreement provisions instead, a view echoed in the 2009 overhaul of the Canadian Competition Act.  The 2003 Trade Practices Act Review of the competition
provisions of the TPA, conducted by former High Court judge Sir Daryl Dawson, affirmed this position.

In 2009, Senators Nick Xenophon and Barnaby Joyce unsuccessfully introduced a bill to target geographic price discrimination.  The bill, known as the Blacktown Amendment, required retailers to charge the same prices at all retail outlets of the same name within a 35 kilometre radius.  A Senate Committee report recommended that the Blacktown Amendment be rejected because there are legitimate operational reasons why prices may vary between a retailer’s metropolitan stores.  However, the bill was focused on price discrimination within Australia and was triggered by the geographic differences in prices charged by major petrol stations and supermarkets.

On the other hand, international price discrimination has received renewed attention in Australia of late.  In July 2013, a House of Representatives Standing Committee released a report on international price discrimination in IT products and the so-called “Australia tax” which confirmed that, in many cases, Australians consumers are paying much more than overseas consumers for IT products.  The stronger Australian dollar has also fuelled the impression appearance of international price discrimination against Australian consumers.

Australian competition policy-makers may be swayed by the Canadian developments and international price differentials to consider introducing reforms to address international price discrimination as part of the root and branch review.

Stay tuned to In Competition for further updates on Canada’s international price discrimination reforms and Australia’s root and branch Review.

Photo credit: flickr / Jeffrey Simpson / CC.BY.2.0

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About The Author

is a solicitor in the Competition and Regulatory team of King & Wood Mallesons, based in the Sydney office. As an avid online shopper, she takes a keen interest in consumer protection issues.

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