Economists refer to this foregone output as the “economic cost” or “deadweight loss” of any merger.
The Council noted that such efficiency-enhancing mergers could also create market power and lead to higher prices that would distort consumer and producer decisions, thereby reducing economic output and efficiency. To illustrate the static efficiency gain, if a merger of two competitors could produce the same total output as the two firms separately but at a lower total cost, the merger would increase economic efficiency and contribute to growth in productivity and living standards. While acknowledging the redistributive effects of an anti-competitive practices and mergers, it advised that other policy instruments such as taxes and social programs were more effective ways to deal with distributional concerns. It proposed “the adoption of a single objective for competition policy: the improvement of economic efficiency and the avoidance of economic waste, with a view to enhancing the well-being of Canadians.” It concluded that competition policy was a means to bring about more efficient performance by the economy as a whole. The Council also noted that a merger was a criminal offence that inhibited the required modernization of Canadian industry, considering the more liberal global trading environment that it correctly foresaw. It identified the small size of the domestic market – then only 21 million people – as a key factor leading to a weak industrial base consisting of too many small firms producing too many products. The Council’s 1969 report studied the structure of Canadian manufacturing industries and found that firms generally lacked the scale and specialization to produce at the efficient, minimum-cost levels. In 1966, the government mandated the independent Economic Council of Canada to study competition policy and provide recommendations. In its first decision in the Propane case, the Competition Tribunal held that the existence of this exception, which is a defence in law, establishes that efficiency is the paramount goal of the merger provisions of the Act. Section 96(1) is an important exception: an anti-competitive merger can be permitted if it brings about efficiency gains that exceed and offset the effects of any prevention or lessening of competition that will result from the merger. The Act generally condemns mergers found to substantially lessen or prevent competition. No other G-7 country has followed Canada’s approach to efficiency in merger review, noted the current Commissioner recently. Successive Commissioners of Competition have called for significant changes or outright elimination of the “efficiency defence” in the Competition Act. Re: The Evolution of the Efficiency Defence in Canada
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