Competition Bureau Publishes Enforcement Guidelines On Predatory Pricing

Copyright 2008, Blake, Cassels & Graydon LLP

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:

1. 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 resolution.
   
   
2. 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.
   
   
3. Price matching to meet competition may now be seen as a reasonable business justification for pricing below average avoidable costs.
   
   

The Guidelines illustrate the Bureau's position on predatory pricing with a number of hypothetical examples. The Guidelines are available on the Competition Bureau's Web site at: http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02713e.html.

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