Canada’s competition has declined, leading to increased prices and profits, says the Competition Bureau

Competition in Canada Has Declined, Pushing Up Prices and Profits: Competition Bureau

In a recent report published by the Competition Bureau, it has been found that competition intensity in Canada has decreased significantly over the last two decades. The report analyzed data from Statistics Canada and an analysis provided by University of Toronto associate professor Matthew Osborne and his team to determine how competition evolved across industries between 2000 and 2020.

A Decline in Competitive Intensity

The bureau’s report highlights a concerning decline in competitive intensity across the Canadian economy from 2000 to 2020. This is evident in various indicators, including:

• Industry concentration: The most concentrated industries became even more concentrated over time, while more industries came to be considered highly concentrated.
• Entry and exit rates: These have declined between 2001 and 2022, suggesting that industries across the economy have become less dynamic.
• Profits and markups: Both have increased over the last two decades.

Profits and Markups on the Rise

The report reveals that profits and markups have increased significantly over the last two decades. Between 2002 and 2018, the average markup across industries rose by 6.7 per cent. However, for industries with the highest estimated markups, the average increased by 12.5 per cent.

There was a similar finding when it comes to profits, which rose more in higher-profit industries between 2000 and 2020. This indicates that large firms are facing fewer challenges from smaller competitors, and fewer new companies are finding a foothold in the market.

The Need for Pro-Competitive Policies

The Competition Bureau is advocating for the adoption of pro-competitive policies to address Canada’s competition woes. Without these 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, according to Commissioner Matthew Boswell.

A Call to Action

The report comes at a time when competition issues are grabbing the attention of people and policymakers. The recent run-up in inflation has brought these competition issues into greater focus, as people and politicians question why prices have risen by so much, so quickly.

Research by staff at the Bank of Canada shows that price increases have closely mirrored the cost increases businesses have faced, implying that consumers have carried the entire burden of higher prices. The federal government recently introduced legislation that would make several amendments to the Competition Act, and has pledged an overhaul of the law.

However, it remains unclear what the timeline is for full modernization of the law. Commissioner Matthew Boswell says this latest report from the bureau highlights the need to modernize Canada’s competition law and for governments to adopt pro-competitive policies.

A Looming Crisis

The decline in competitive intensity has significant implications for the Canadian economy. Without a shift towards more competitive markets, prices are likely to continue rising, making life less affordable for Canadians. The adoption of pro-competitive policies is essential to prevent this outcome and ensure that Canada’s economy remains vibrant and competitive.

Conclusion

The Competition Bureau’s report highlights a pressing issue in Canada: the decline in competitive intensity. This has significant implications for the Canadian economy, including higher prices and reduced affordability for consumers. The adoption of pro-competitive policies is essential to address these issues and ensure that Canada’s economy remains vibrant and competitive.