Originally published in Blakes Bulletin on
Competition, July 2008
The Competition Bureau (the Bureau) today published
Enforcement Guidelines on Predatory Pricing (the Guidelines).
The Guidelines explain how the Bureau enforces the provisions
of the Competition Act, which address predatory
conduct. The purpose of the Guidelines is to deter
anticompetitive behaviour by ensuring that Canadian businesses
and the public understand when pricing below cost may result in
an investigation under the Competition Act but, at the
same time, avoid chilling aggressive price competition.
The Bureau considers predatory pricing to be "a firm
deliberately setting prices to incur losses for a sufficiently
long period of time to eliminate, discipline or deter entry by
a competitor, in the expectation that the firm will
subsequently be able to recoup its losses by charging prices
above the level that would have prevailed in the absence of the
impugned conduct, with the effect that competition would be
substantially lessened or prevented." With respect to
preventing or lessening of competition substantially or
eliminating a competitor, the Bureau considers, among other
things, whether the firm engaging in the practice has or is
likely to have market power, barriers to entry, and whether or
not the complainant's business in the relevant market
is unprofitable over the period of time the price reductions
have been in force, and whether this can be attributed to the
alleged predatory conduct.
The Bureau first issued guidelines on predatory pricing in
1992 and, in 2007, initiated a revision of them in light of
recent jurisprudence and economic thinking. Public
consultations on the updated Guidelines were held in October
2007. The Guidelines are a culmination of that process.
Three policy changes have been incorporated into the
Guidelines, and they are summarized as follows:
Predatory pricing complaints will now be examined
primarily under the abuse of dominance provisions and will be
addressed criminally only where conduct is egregious.
Egregious conduct includes, but is not limited to, using
predatory pricing to enforce participation in a cartel
agreement, or on an ongoing, repetitive basis, or when the
firm is subject to a Competition Tribunal or court order, or
an undertaking forming part of an alternative case
When conducting price-cost analysis to determine whether
prices are "unreasonably low" under both the
criminal predatory pricing provisions and the non-criminal
abuse of dominance provisions, the Bureau will use the
standard of average avoidable costs, which refers to the cost
the business would have avoided had it chosen not to sell the
products(s) in question, instead of average variable costs
and average total cost, as used in the previous guidelines.
In the Bureau's view, applying an average avoidable
cost standard is more appropriate and will also ensure
consistency with respect to price-cost analysis.
Price matching to meet competition may now be seen as a
reasonable business justification for pricing below average
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