On February 12, 2010, Canada's Commissioner of Competition
announced that she would not agree to changes to a fourteen-year
old Competition Tribunal order which, among other things, prohibits
the Interac Association from operating on a for-profit basis.
Interac is the organization that develops and operates a national
payment network allowing Canadians to access their money through
automated banking machines and point-of-sale terminals.
Surprisingly, the Commissioner appears to favour a dated and
cumbersome regulated structure over evolution to a market-based
entity. The press release issued by the Commissioner did not
explain the analysis that lies behind her decision and raises a
number of questions as to why she would not support a move by a
regulated entity towards a more market-based structure.
In 1996, on the application of the Commissioner, the Competition
Tribunal issued an Order on consent against Interac and the leading
Canadian banks who were its founding members under the abuse of
dominance provision of the Competition Act. The detailed
Order was intended to remedy an alleged joint abuse of dominance by
the respondents. In brief, the structure and rules regarding
membership and services, which had been established when massive
and risky investment to develop technology was required, were by
1996 alleged to be inhibiting competition in financial services and
The Order required, among other things, that Interac be maintained
as a business corporation and managed on a not-for-profit basis.
Any fees or charges Interac imposed for the use of the inter-member
banking network could only recover costs, which apparently could
include cost of capital, but not returns on risk capital.
The Competition Tribunal issued reasons in 1996 when the Order was
made. The Tribunal noted that the Commissioner of the day described
the measures in the order that relate to the structure of the board
of directors as providing for a more competitive environment within
Interac, which would lead to enhanced innovation in services
offered over the Interac network. Innovation was thus recognized as
something to be encouraged. The requirement that Interac operate as
a non-profit organization was apparently intended to preclude the
charter members of Interac from exploiting their control of the
network for their own gain.
In 2009, approximately thirteen years after the Order was issued,
Interac (which has continued to develop and now has an increased
and diversified membership) requested that the Commissioner consent
to vary the Order to allow Interac to restructure to a for-profit
model. The Competition Bureau conducted a comprehensive assessment
of Interac's request and obtained extensive information from
Interac and other market participants, as well as consulting with a
number of experts.
The Commissioner's press release states:
Based on currently available
information, including Interac's current dominant position in
the market, the Bureau cannot support changing or removing the
safeguards in the Consent Order, which are effective in protecting
consumers from potentially anti-competitive activity. In
particular, the Bureau does not agree that the removal of the
restriction against for-profit activities by Interac would be
pro-competitive, or is necessary to allow Interac to remain
competitive..To provide Interac with greater flexibility to respond
to any material entry in the future by a competitor, the Bureau
also evaluated other changes to the governance structure and
corporate status of Interac. Those changes would allow Interac to
continue as a not-for-profit corporation with independent
directors. The Bureau has concluded that such changes would be
acceptable, as they would maintain the necessary safeguards against
anti-competitive activity that are contained in the Order.
The Commissioner is thus prepared to accept some changes to the
board structure, but is not willing to agree to a for-profit model.
This is curious because the Commissioner would normally be expected
to recognize that profit is the best (and a completely acceptable)
incentive for innovation, and that profit-motivated market forces
are generally more effective in delivering the benefits of a
competitive marketplace than are regulated market structures. It
is, therefore, unexpected and puzzling that the Commissioner would
reject a proposal for Interac to evolve into a more market-based
model without providing an explanation as to why this deviation is
appropriate in the circumstances (beyond merely alleging a dominant
European law recognizes the setting of an excessive price as an
exploitive abuse of dominant position. In Canada, however, it is
generally accepted that the mere setting of a high price or the
earning of significant profits are not in themselves
anti-competitive acts. The Commissioner's rejection of a
proposal to earn profits raises the question as to whether the
underlying concern is related to pricing. This is a dangerous area
for any competition law enforcement agency, given the considerable
difficulty of determining what constitutes an excessive price.
Indeed, the Bureau's usual preference for market forces over
regulated industries is understood to be due in part to skepticism
about the ability of regulatory authorities to act in place of
normal market pricing signals to determine an appropriate price.
Hopefully, the Commissioner's decision with respect to Interac
is restricted to the unique facts and does not presage a shift
towards a more interventionist European approach to pricing.
Perhaps future developments in the Interac matter will shed more
light on the Commissioner's views on the roles of profit and
pricing decisions in the marketplace.
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The Canadian Competition Bureau issued a template document for use as a form of Consent Agreement, to be filed with the Competition Tribunal to resolve concerns the Bureau may have with proposed mergers.
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