[Vol. 16
Market Power, Efficiencies, and the Public Interest
in Canadian Combines Law
David Cayne*
IN TR OD U CTION ………………………………………………………………………………………………..
THE CANADIAN LEGISLATION
……………………………………………………………………
a. Behavioral Proscriptions ……………………………………………………………………….
b. Structural Proscriptions ………………………………………………………………………
THE DIFFICULTIES INHERENT IN THE UNQUALIFIED
APPLICATION OF A PER SE RULE
…………………………………………………………
THE ASSESSMENT OF MARKET POWER …………………………………………………
a. Market Power Derived Through Unilateral Action ……………………….
1. Market Share as an Indicant of Market Power ………………………….
2. Excessive Profits as an Indicant of Market Power …………………..
3. The Problem of the Inefficient Monopolist …………………………………
4. Discriminatory Pricing as an Indicant of Market Power
5. In R ecapitulation
…………………………………………………………………………….
………
b. Market Power Derived Through Competitor Coordination …………
1. Agreements and Mergers
2. Oligopolistic Interdependence
……………………………………………………………..
………………………………………………………
THE CONFLICT BETWEEN MARKET POWER AND
EFFICIENCY CONSIDERATIONS
……………………………………………………………..
a. Economic Considerations ……………………………………………………………………..
b. Social Considerations …………………………………………………………………………….
c. Political Considerations ………………………………………………………………………..
CO N CLU SIO N ……………………………………………………………………………………………………..
* Of the Faculty of Law, McGill University.
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Introduction
It is the central contention of the analysis which follows that
the Canadian courts have historically failed to invoke proper eco-
nomic standards in their interpretation and application of the Com-
bines Investigation Act.’ The most serious deficiency of the judge-
made law lies not in its implicit abandonment of a legislative
mandate, but rather in its failure to conceptualize combines prob-
lems in terms of the underlying policy considerations. Stated
generally, the most overt judicial tendency has been to develop
rigid rules which vary with the form of industrial conduct rather
than with its substance or consequence; more specifically, judicial
rejection of the concepts of market power and economic efficiencies
in the evaluation of the behavior of firms has led to the failure to
apply similar standards to horizontal integration effected through
different means.
With these thoughts in mind, the writer will first analyze the
legislative prohibition against undue market power resulting from
both behavioral and structural sources. After having cbnsidered the
difficulties inherent in Supreme Court dicta, he will proceed to
suggest an approach whereby the courts can assess market power
on the one hand, and evaluate efficiencies on the other. He will
conclude with a consideration of the extent to which cost savings,
in the context of the Canadian economy, should be deemed to
mitigate market power which might otherwise be unlawful. Where
relevant, the writer will draw upon the American Antitrust ex-
perience, rich both in caselaw and in commentary, in order to
shed additional light upon the economic consequences of Anti-
Combines decision making.
The Canadian Legislation
The very existence of Combines legislation signifies Parliamentary
recognition that a freely-operating market economy does not
possess self-adjusting mechanisms to ensure that optimal perform-
ance is invariably achieved. Some public interference is thus deemed
justifiable in spite of the traditional presumption in favor of a
policy of laissez-faire. Since the Combines Act is merely a legislative
attempt to enter the economic arena in a limited way, any under-
standing of its conceptual framework must be predicated upon
1 R.S.C. 1952, c. 314 as amended by S.C. 1960, c. 45; Section 32 of the present
Act was previously embodied in the Criminal Code, section 411, S.C., 1953-54, c.
314.
McGILL LAW JOURNAL
[Vol. 16
a broad appreciation for the kinds of problems with which it
purports to deal.
The reader need not take the foregoing as a declaration of the
writer’s intent to review in detail the myriad economic theories
which attempt to explain how the goal of optimal performance
may best be achieved. The only model which we need understand
is the generally accepted hypothesis that optimal performance,
however it be defined, is in some way determined by the interaction
between market structure and market conduct.2 Given this tra-
ditional assumption, the framework within which the Act is formu-
lated becomes apparent: either structural or behavioral defects
may render a situation unlawful, and accordingly, the Legislature
has armed the courts with a range of sanctions sufficiently wide
to eradicate both kinds of weaknesses
a. Behavioral Proscriptions
The substantive prohibitions against behavior tending to increase
market powet are embodied in sections 32 and 33 of the Enactment,
which declare illegal horizontal coordination of competitor conduct
which, whether effected by agreement or merger, might seriously
undermine the state of rivalry which the Act is designed to foster.
Section 32(1) (c) 4 declares illegal informal arrangements which
“… prevent, or lessen, unduly, competition…”; section 33, read
in conjunction with sections 2(e) and 2(f), establishes similar
standards by proscribing mergers or monopolies which lessen, or
are likely to lessen competition, “….
to the detriment or against
the interest of the public…”. The latter provision is unequivocal:
it is incumbent upon the courts to generate criteria of what consti-
tutes the public interest, and to apply them on a case by case basis.
2 Bain, Industrial Organization, (lst ed., 1959), at pp. 3 and 44.
3 The difficulty in drawing an analytically clear distinction between structure
and conduct results from the fact that it is the behavior of firms themselves
which is always the direct cause of performance, either good or bad. Where
performance deviates significantly from the optimum, the issue becomes
whether it is most expedient to sanction behavior itself, or rather, to effect
structural alterations which would then make behavioral sanctions more
effective. See Kaysen and Turner, Antitrust Policy, (1959), at pp. 59-60.
4 For practical purposes, the other provisions of section 32(1) are far less
significant. The last reported decision under headings (a), (b), or (d) was
that of R. v. Canadian Import Co., (1935), 3 D.L.R. 330. The remaining sub-
sections of section 32 itself exempt from section 32(1) certain classes of trade
association activities, as well as agreements related to export products.
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CANADIAN COMBINES LAW
The prohibition against horizontal arrangement 5 is, however,
less clear. The word “competition” in the phrase quoted appears
to establish injury to the competitive process as the primary criterion
of illegality, rather than some other standard such as prejudice to
the public interest. Nevertheless the comma after the word “lessen”
indicates that there may be a prevention of competition which is
not undue. If Parliament had intended to confine the qualification
of the word “unduly” to the preceding word, no comma would
have been interposed between the two. That being the case, it is
clear that “undueness” cannot be measured by competitive standards
alone. Other factors, such as efficiency considerations, may be
invoked as a defense to a complete or substantial elimination of
competition on the grounds that no harm has resulted to the public
interest. The prevention or lessening of competition which the
Act contemplates becomes undue when, as a consequence, consumer
or other public interests are prejudicially affected. Accordingly,
there exists no “privilege” to free competition in Canada. The
only right which the Act embodies is that the public interest be
left unimpaired by the concerted action of firms.0 This line of
5It should be noted that the word “arranges” in section 32(1) implies that
the prohibition extends to all agreements, informal as well as formal, and
whether partaking of a contractual character or not. The prohibition is to
this extent redundant, for it is difficult to conceive of a conspiracy, combine,
or agreement which would not be subsumed under the broader heading of
an arrangement. While Canadian courts have tended to formulate the problem
in conspiratorial terms, British authorities have held that the term “agree-
ment” in section 6(1) of the Restrictive Trade Practices Act, 1956, 4-5 Eliz. 2, c.
68, as clarified by section 6(3), encompasses all arrangements whereby the
participating parties assume moral obligations: In re Mileage Conference
Group of the Tyre Manufacturers’ Conference Ltd.’s Agreement, (1967), L.R. 6
R.P. 49, at p. 102; British Basic Slag v. The Registrar of Restrictive Trading
Agreements, (1963), L.R. 4 R.P. 116, at p. 146.
Conspiracy itself may be proved by adducing either direct or circum-
stancial evidence: R. v. Northern Electric Co. Ltd., 24 C.P.R. 1, at p. 5; Paradis
v. The King, [1934] S.C.R. 165, 61 C.C.C. 184, at p. 186, and the adherence to
a pricing manual resulting in identical consumer prices has been held to be
conspiratorial: R. v. St. Lawrence Corp. et al., (1969), 5 D.L.R. (3d) 263, at p.
272. Nevertheless, proof of consumer cost factors and economic conditions
resulting in similar pricing techniques may be exculpatory: R. v. Burrows et
al., (1968), 54 C.P.R. 95, at p. 129.
0 Sections 19(1), 22(1) and 22(3)
lend further support to this argument,
all of which direct the Restrictive Trade Practices Commission to consider
“the effect on the public interest” of agreements which the Director refers
the importance of the
to it for investigation. Section 22(1) underscores
evaluative process by requiring the Commission, where such is the case,
to state why it is unable to make a meaningful appraisal.
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reasoning is consistent with sections 2(e) and 2(f) which, as we
have seen, establish public detriment as a prerequisite to the
offenses of merger and monopolization contemplated by section 33.
The same criterion 7 is applicable, whether the impugned behavior
be the consequence of overt agreement, merger, unilateral action,
or oligopolistic interdependence.
To argue otherwise is to support the proposition that form should
prevail over substance; it is tantamount to the contention that
Combines Law is primarily concerned with the means, rather than
the ends of concerted action; it assumes that the values incident to
competition are of such paramount importance that the source must
be preserved, regardless of cost; it is predicated upon the mis-
conception that the Act has been promulgated to maintain standards
of conduct, rather than to ensure that the public interest, the
underlying goal of all legislation, is properly safeguarded. It is no
answer to argue that the elimination or substantial reduction of
competition, is, by its very nature, incompatible with the public
interest. Were such the case, monopolization would be a per se
offense. This reasoning, moreover, leads to the untenable conclusion
that, in precisely the same factual circumstances, a defense based
upon the absence of harm to the public interest would be sustainable
under section 33, but inadmissible under section 32.
The writer’s contentions do not yield the conclusion that dif-
ferent forms of concerted action will be equally defensible. Thus,
the very fact that colluding firms retain their separate identities
may preclude them from justifying their conduct by invoking
substantial efficiency considerations. Proof of monopoly control
places beyond reach the argument that the primary design of the
scheme, though reducing the absolute number of firms, was never-
theless to facilitate a more effective competition. The point of
crucial significance is merely that in specific circumstances the
horizontal coordination of competitor behavior may have beneficial
effects, and accordingly, where such affects are alleged, the court
should look beyond the mere quantitative lessening of competition
7The British Parliament, perhaps less trusting of the courts than its
Canadian counterpart, has enacted the same criterion in a more explicit
manner. Section 20(3) of the Restrictive Trade Practices Act, supra, n. 5,
directs the Restrictive Trade Practices Court, constituted under section 2
of the Act to determine whether agreements coming within its jurisdiction
are contrary to the public interest. The following section establishes a
presumption in favor of the Crown, defeasible only by proof that the
arrangement comes within the purview of one or more of the seven circum-
stances enumerated.
[No. 3
CANADIAN COMBINES LAW
in determining whether the provisions of the Act have been violated.
b. Structural Proscriptions
Section 2(f) of the Act defines “monopoly” as
… a situation where one or more persons either substantially or com-
pletely control throughout Canada or any area thereof the class or species
of business in which they are engaged and have operated such business
or are likely to operate it to the detriment or against the interest of the
public…
A close reading of the definition reveals that the “control” which
the “one or more persons” may have need not be derived through
agreement in order to come within the purview of section 33. Hence
the courts would be justified in relying upon the section to effect
structural changes in industries characterized by oligopoly where
the evidence indicates that the participating firms could coordinate
their pricing or product policies in the absence of communication
in its usual form. Thus, the Act attacks the problem of oligopolistic
interdependence directly, irrespective of whether the parties in
question entered into the kind of arrangement proscribed by section
32. The likelihood that the parties will conduct their affairs “… to
the detriment or against the interest of the public…” flows from
the structural environment itself, and accordingly, section 31(1)
permits the court to effect the appropriate structural alterations.
Similar prohibitions apply to the monopolist possessing sufficient
market power that he need not predicate his decisions upon the
anticipated reactions of the little competition which he might face.
Once again, the significant policy question is whether the efficiencies
inherent in a unified operation justify the control derived. Where
efficiencies fail to mitigate excessive market power, the courts
must characterize the source of the defect as either behavioral or
structural, in order that the appropriate sanction be imposed.
It is true that the demarcation between structure and conduct
is frequently vague and imprecise. Nevertheless, it is equally clear
that the characterization cannot be effected by means of a limited
inquiry into the conduct of firms themselves. The judiciary must
give serious consideration to underlying structural conditions, in
spite of the plea of ignorance that “[o]ur lady of the common
law is not a professed economist.” ” It may well be true that the
administration of combines policy would be facilitated by entrusting
technical economic issues to men skilled in the discipline. That
notwithstanding, Parliament has chosen to delegate this responsi-
bility to the courts, and they must accordingly respond in order
to properly fulfill their constitutionally defined functions.
8R. v. Container Materials Ltd., (1940), 74 C.C.C. 113, at p. 118.
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The Difficulties Inherent in the Unqualified
Application of a Per Se Rule
In this writer’s view, both the text of the Combines Investigation
Act and the dictates of policy require that competition be conceived
primarily in a functional sense; that is, as a device to further the
public interest rather than as an end in itself. For reasons elaborated
upon later in this article,9 the public interest, in the context of
Canadian Combines policy, is best served by a system of industrial
organization which maximizes the resources of society. Stated dif-
ferently, market power resulting from internal expansion or hori-
zontal integration should be deemed permissible in the absence
of proof that its debilitating effects clearly outweigh the efficiencies
derived. The foregoing does not, of course, preclude the courts from
generating presumptive rules of illegality applicable to classes of
agreements which consistently prove to be unjustifiable.
In the four judgments which it has rendered, the Supreme Court
has made it clear that it does not share the writer’s concept of
a “functional” competition. In its first decision, the Court had to
consider the legitimacy of a price-fixing agreement which yielded
monopoly control in the absence of any allegation that some benefit
enured to the public. The sole justification pleaded was that.
… before an agreement can be said to provide for unduly preventing or
lessening competition, the court must be satisfied that it is designed to
do so to an extent not reasonably necessary for the protection of the
interest of the parties to it, whatever may be its effect upon the interests
of the public.’ 0
Anglin, J. rejected the argument in the following terms:
The difference, in my opinion, between the meaning to be attached to
‘unreasonably’ and that which should be given to ‘unduly’ when employed
in a statutory provision such as that under consideration is that under
the former a chief consideration might be whether the restraint upon
competition effected by the agreement is unnecessarily great having regard
to the business requirements of the parties, whereas under the latter the
prime question certainly must be, does it, however advantageous or even
necessary for the protection of the business interests of the parties, impose
improper, inordinate, excessive, or oppressive restrictions upon that com-
petition the benefit of which is the right of everyone?”
9 Infra, pp. 523 et seq.
‘o Weidman v. Shragge, (1912), 46 S.C.R. 1, at p. 42. The argument invoked
by the plaintiff was based upon English law prevailing at the time, as
articulated in Collins v. Locke, (1878-9), 4 A. C. 674, and Dubowski and Sons v.
Goldstein, (1896), 1 Q.B. 478.
“3 Weidman v. Shragge, supra, n. 10, at p. 42.
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CANADIAN COMBINES LAW
“That competition” which Anglin, I. contemplates is undoubtedly
competition which is consistent with the public interest.12 Almost
two decades later, the Court adopted this reasoning to reject a
similar argument in Stinson-Reeb Builders’ Supply v. The King.”
Hence, until 1942, the governing rule was merely the eminently
reasonable, if not self-evident principle, that the business interests
of private parties should be excluded from the determination of
what constitutes the public interest. The situation had not yet
arisen where it was alleged that incidental to the impugned agree-
ment, there enured a public benefit.
The basis of the present state of the law can be found in
Container Materials Ltd. v. The King,’4 where the defendants
pleaded that the efforts of the Trade Association in which they
participated to fix prices and standardize products was the neces-
sary consequence of a decline in demand inducing heavy losses.
The Court seemed unmoved by the fact that the container industry
was in a serious state of disrepair and on the verge of a collapse
which might have left the vertically related shipping industry
and the public which it served without the necessary services. 15
It merely invoked the Weidman and Stinson-Reeb decisions to
support the proposition that the Crown need not allege prejudice
to the public interest where there is an undue prevention of
competition. The existing rule that private interests must bow
where public detriment results was extended to yield the assertion
that competition must be irrebutably presumed to coincide with
the public interest and hence must prevail even where, as a con-
sequence, the latter is prejudicially affected. The true import of
the judgment was to exclude any consideration of effect in de-
termining whether an agreement comes within the proscriptions
of the Combines Act.
The decision rendered in Howard Smith Paper Mills Ltd. et al.
v. The Queen’0 extinguished any hopes that the Court would
reverse itself. Kellock, J. reaffirmed the principle in unequivocal
12 Sir Charles Fitzpatrick, C. J. held that, “[aill agreements which prevent
or lessen competition do not come within the operation of the statute; the
mischief aimed at is the undue and abusive lessening of competition which
operates to the oppression of individuals or is injurious to the public
generally.” Ibid., at p. 4.
13 [1929] S.C.R. 276, at p. 278.
‘4 [1942] S.C.R. 147.
15 See in this regard the judgment of Henderson, J. A., dissenting in the
Court of Appeal, (1941), 3 D.L.R. 145, at p. 196.
16 [1957] S.C.R. 403.
McGILL LAW JOURNAL
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terms, even though uncontradicted evidence received by the court
of first instance indicated that the establishment of a fine paper
industry in Canada without the agreements in question would have
been “well nigh impossible.” 17 The Supreme Court justice declared
that,
[t]he statute proceeds upon the footing that the preventing or lessening
of competition is in itself an injury to the public. It is not concerned with
public injury or public benefit fTom any other standpoint.1 8
Cartwright, J. with whom Locke, J. concurred, found “this con-
clusion a surprising one”,’ 9 but nevertheless felt himself bound by
previous decisions 0
The writer has contended that if this rule were consistent with
the legislation from which it is supposedly derived, monopolization
would be a per se offense under sections 33 and 2(f) of the Act.
Yet this disparity is not its most serious deficiency; courts cannot
be condemned for the occasional failure to perceive a frequently
ambiguous if not fictitious legislative “intent”. The fundamental
weakness is that the principle is unworkable in its present form:
it provides no conceptual framework which lower courts can apply
in analyzing the legality of specific agreements. If the rule were
limited to circumstances entailing an elimination of competition,
it would merely amount to the analytically workable contention
that monopoly power derived through horizontal agreements is
illegal per se. By extending the presumptive rule beyond these
limits, the Supreme Court has in effect left lower courts without
effective means of determining when competition has been unduly
lessened.
The imminency of the dilemma becomes apparent when it is
recalled that the underlying goals of Combines policy are to
disseminate market power and to foster efficiency. While the
exclusion of one of these policy goals quite obviously undermines
the purpose of the legislation, workable rules can nevertheless be
formulated around the other. Thus it is meaningful, although not
justifiable, to say that market power is to be avoided regardless
of cost. The critical defect in the Fine Papers decision, however,
is that the rule therein formulated fails to reflect either of the
two fundamentals of Combines policy.
17 [1954] O.R. 543, at p. 571.
38 Supra, n. 16, at p. 411, Rand, Fauteux, and Kerwin, 3. J. concurring.
19 Ibid., at p. 426.
2 0 Idem., at p. 427.
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CANADIAN COMBINES LAW
Efficiencies, we are told, are utterly irrelevant, for the “….
les-
sening of competition is in itself an injury to the public.” The
doctrine teaches that it is better for the consumer to be deprived
of the product he requires than to be given the choice to pay
more for the article than would be the case were an atomistic
structural situation, impossible under the circumstances, to prevail.21
Rivalry must be fostered, not for what it does, but rather for what
it is. This notion deprives the concept of any functional meaning,
and accordingly precludes the development of criteria of legality
which would more closely correspond to the various dimensions
of the public interest. The judicial viewpoint is thus inconsistent
with contemporary economic models which tend to rely upon the
criterion of workable competition as the ultimate goal of industrial
organization precisely because of its functionally valuable attributes.22
Little more importance is attached to the market power which
may emanate from horizontal agreements. While it is true that
market power is positively correlated with the concentration level
of firms in specific industries, the relationship is by no means
perfect. The condition of entry plays an integral role in determining
the behavioral parameters within which firms large or small must
operate, and hence highly concentrated industries are not in them-
selves incompatible with the operation of impersonal market forces 23
The salient point is that regardless of the importance which ef-
ficiency considerations may be deemed to have in antitrust policy,
the proper question to be asked is not whether competition is
to be preserved, but rather, the extent to which market power is
to be avoided.
It is true that the monopoly control with which the Supreme
Court had to deal rendered the distinction between concentration
2l Supra, n. 17.
22 The vital element common to these models is that workability is itself
defined in terms of the performance which it yields. The analyses are
essentially qualitative in nature, so that competition is “workable” provided
that it approximates optimal performance. Thus, J. M. Clark contends that
“a contribution is made simply by formulating the concept of the most
desirable, practically possible form of competition;” Toward a Concept
of Workable Competition, (1940), 30 Am. Econ. Rev. 241, at p. 242. One writer
has gone so far as to formulate a definition which implies that, in certain
circumstances, a monopoly may be workably competitive. See, in this regard,
Ferguson, A Macroeconomic Theory of Workable Competition, (1964), at p. 80.
For an excellent review of the development of the concept, and its implications
for antitrust policy, see Knox, Workable Competition and Public Policy,
(1967-68), 1 Antitrust Law and Economics Review 3, at p. 41.
2 3 Bain, op. cit., n. 2, at p. 242.
McGILL LAW JOURNAL
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and market power of lesser importance than would otherwise have
been the case. Few economists would argue that the mere threat
of entry would deter a monopolist from exacting excessive prices
even though only on a short-term basis.14 Nevertheless, the majority
adopted without qualification broad language to the effect that
actual power to implement the acts contemplated in the agreement
is not a necessary element of the offense. Kellock, J. held that,
[a]ssuming that during any part of the period of control the aim of the
parties to the agreement could not have been successfully carried into
execution, such a fact would not, in law, constitute any answer to the
indictment.25
The justification invoked was that since the behavior attacked was
conspiratorial in nature, the crime was constituted upon agreement,
“… though in the circumstances of the case it be impossible to
commit it.” 26
The real difficulty which this reasoning creates is not the
technical legal problem that a conspiracy can only result where
the acts agreed upon are themselves illegal, and that no Act of
Parliament condemns behavior in restraint of trade.27 Vlhile a
per se rule which refuses to consider market power when assessing
the legality of concerted action is justifiable where the pernicious
purpose and power of colluding firms is overt, it is clearly an
inadequate instrument to deal with the more ambiguous cases.
Herein, then, lies the central weakness of the doctrine.
24One noted author contends that “if the entry of new firms is not too
rapid, the merger may make monopoly profits for a considerable period;
and even though thereafter the losses are permanent, their discounted value
need not be so large as to wipe out the initial gains.” See Stigler, “Monopoly
and Oligopoly by Merger”, in Readings in Industrial Organization and Public
Policy, (Irwin, 1958). This statement was predicated upon the assumption
of relatively free entry.
25 Supra, n. 16, at p. 412.
2
6 Stephen, Digest of the Criminal Law, (9th ed., 1950), at p. 24, cited with
approval by Kellock, J., id., at p. 412, and by Taschereau, J., id., at p. 406.
In R. v. Electrical Contractors of Ontario, [1961] O.R. 265, at p. 279,
Laidlaw, J. speaking for the Ontario Court of Appeal, implied that market
power is not an element in the offense: “The only essential capacities of
the accused are the capacity to conspire, combine, agree or arrange with
another person, and the capacity to form the wrongful intent to “prevent,
limit or lessen competition unduly in any respect set forth in the sectionl”
For remarks with similar implications, see Idington, J. in Weidman v. Shragge,
supra, n. 10, at p. 20.
27See, in this regard, Gosse, The Law of Competition in Canada, (1962), at
p. 95.
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By way of example, let us consider the problem noted earlier:
how are lower courts to determine what constitutes an undue
lessening of competition in the absence of a consideration of either
market power or cost savings? The nub of the matter is that a
per se rule based solely upon proof of horizontal agreement admits
only of a quantitative test of legality. Bound by the principle of
stare decisis, inferior tribunals are free only to hold that it is
unlawful to eliminate all competition, or that it is illegal to eliminate
any competition. The analytical principles uttered by the Supreme
Court are not unlike those articulated by its counterpart in the
United States. Thus in United States v. Von’s Grocery Co.,28 that
Court prohibited the integration in question on the grounds that,
.. Congress feared that a market marked at the same time by both a
continuous decline in the number of small business and a large number
of mergers would slowly but inevitably gravitate from a market of many
small competitors to one dominated by one or a few giants, and com-
petition would thereby be destroyed. 9
Considering that entry into the Los Angeles grocery market was
relatively unimpeded, and that the effect of the merger would have
been to place the largest three firms on a more even footing, it is
clear that the concept of competition harboured by the American
Court is essentially quantitative in nature and based solely upon
the absolute number of independent business units which rival
for the consumers’ patronage. As many authorities have noted,30
virtually any lessening of competition effected through merger
constitutes a technical violation of section 7 of the Clayton Act.31
For practical purposes, the important problems which remain relate
to the enforcement of the Act, rather than to issues of substantive
law. It is true, of course, that the Canadian law applies to agree-
ments rather than to mergers. Nevertheless, it is difficult to see
why different analytical rules should be applied to integration
effected through these two devices.
The Canadian courts do not have to follow suit. Absurd though
it be, they could hold horizontal integration to be permissible
provided that some competition, however slight, remains. The im-
28334 U.S. 270 (1966).
20Ibid., at p. 278.
30See, for example, Phillips, Some Implications of the Supreme Court’s
Antimerger Decisions, (1967), 21 Southwestern LJ. 429, at p. 441; Bison, The
Von’s Merger Case – Antitrust in Reverse, (1966-67), 55 Georgetown L.J. 201,
at p. 231.
3138 Stat. 730 (1914), as amended, 15 U.S.C. s. 12-27 (1959), as amended,
15 U.S.C. s. 13, 21 (Supp. v, 1964).
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[VoL. 16
portant point is that the alternatives are meager indeed, and that
hopefully, the doctrine from which they are derived will be honored
more in the breach than the observance. It is no easy task to assess
the validity of this optimism, because virtually all the agreements
challenged did in fact eliminate competition, and hence the presiding
judges could apply a quantitative criterion unimpeded by analytical
difficulties. Nevertheless, dicta do exist which indicate that the
courts are coming to recognize the necessity for analyzing a lessening
of competition in terms of the resulting market power.32 In general
it would appear that they have refused to follow the majority of
the Supreme Court, and thus have implicitly rejected the quantitative
test which would necessarily have followed. In so doing, they have
not, however, developed a rigorous methodology for dealing with
the concept of market power, and hence it is to this problem
that we now turn.
The Assessment of Market Power
Judicial commitment to the concept of market power as an
analytical device requires the courts to develop a methodology for
assessing the extent to which firms have freed themselves from
the discipline of impersonal market forces. Conceptually, excessive
power may be viewed as the derivative of either unilateral or
collective action,33 and hence in the analysis which follows, the
32 In the Howard Smith decision, supra, n. 16, Cartwright, J., with whom
Locke, J. concurred, held at p. 426 that “.. . it is the arrogation to the members
of the combination of the power to carry on their activities without com-
that the
petition which is rendered unlawful.” While it is unfortunate
learned Judge confined his statement to monopolistic power, his was the
only judgment which formulated the problem in terms of market power.
Subsequent decisions have tended to adopt his logic in this respect, and
the reasoning of the majority. See
have accordingly refused to follow
R. v. Canadian Breweries, [1960] O.R. 601, at p. 605; R. v. Beamish Con-
struction, [1966] 2 O.R. 867, at p. 898; R. v. Canadian Coat and Apron
Supply Ltd. et al., (1968), 2 C.P.R. n.s. 62, at p. 74.
33 An important distinction may also, of course, be drawn between market
power resulting from the behavior of firms, and that which flows from the
structural environment itself. The distinction is relevant for the purpose
of determining the appropriate sanctions in specific cases, and hence the
writer will deal with it in some detail in the discussion of market power
emanating from an oligopolistic structural environment, infra, at pp. 518-523.
For a more complete treatment of the matter, see Friedman, Monopoly,
Reasonableness and Public Interest in the Canadian Anti-Combines Law,
(1955), 33 Can. Bar Rev. 133, at p. 137. In discussing the problem, however,
that author pays but scant attention to Canadian law, no doubt because
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writer will consider judicial efforts to diagnose and evaluate market
power emanating from each of these sources. Where the government
has chosen to attack the single-firm monopolist, the courts can
look for a number of symptoms, such as the gradual but persistent
elimination of competition, profits which significantly exceed the
norm for substantial periods of time, and discriminatory pricing
techniques. The task is considerably more difficult where the
judiciary is called upon to evaluate the legality of horizontal inte-
gration recently constituted. Lacking data which might reveal the
effects of the alleged power, it must in effect predict what con-
sequences the integration will actually have. Perhaps the most
dangerous of these is the threat of oligopoly, and the interde-
pendence that frequently comes with it.
A meaningful assessment of market power, whatever its source,
must necessarily be predicated upon a process of market delimit-
ation 34 which closely conforms to economic actuality. An unrealis-
tically narrow definition of the relevant market would exclude actual
or potential competition which represents effective safeguards, with
the result that an integrated operation would be disbanded without
justification. There would follow needless costs inherent in the
ensuing corporate reorganization, as well as the potential loss, of
scale economies. Conversely, where a geographic 3 5 or product
both courts and administrators have traditionally viewed violations of the
Combines Act to be purely the result of deviant behavior.
34 Section 2(f) of the Combines Act refers to a “class or species of business.”
While the phrase appears in the definition of a “monopoly”, it is submitted
that it is improper to apply different standards of delimitation where the
market power is derived from other sources. See in this regard, Jones,
The Brown Shoe Case and the New Antimerger Policy: Comment, (1964), 54
Am. Econ. Rev., 407, at p. 408; Steckler, Market Definition and the Antitrust
Laws, (1964), 9 Antitrust Bull. 741. But see contra, Martin, The Brown Shoe
Case and New Antimerger Policy: Reply, (1964), 54 Am. Econ. Rev. 413.
35 Section 2(f) proscribes monopoly power which exists “…throughout
Canada or any areas thereof…” ‘While a proper determination of the relevant
geographical market may be just as critical as an appropriate delimitation
of the product market, the writer will not discuss this aspect of the problem.
The issue has been of little importance in Canada, no doubt as a result of
the sparsity of merger cases to have come before the courts. In the one
case where geographical limitations could have been important, a basing
price system, deemed legitimate under the circumstances, was held to render
transportation costs irrelevant, and hence a broad definition resulted:
R. v. British Columbia Sugar Refining Co., (1960), 32 W.W.R. 577, at p. 639.
For a review of the current American approach to this matter, see Hale and
Hale, Delimiting the Geographic Market: A Problem in Merger Cases, (1966),
61 Nw. U.L. Rev. 538.
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market is deemed to extend beyond its proper limits, excessive
market power would remain undiagnosed, thereby rendering the
consumer liable to excessive prices where there is in fact substantial
reliance upon the items in question.
The bipolar objectives inherent in Combines policy of stimulating
efficiency and eradicating market power remain unambiguous.
Hence, if we knowingly possessed flawless techniques for evaluating
the extent of the power vested in specific firms, logic would dictate
that we first assess the relative weights of power and efficiency,
and then proceed to make a policy judgment as to which should be
deemed of paramount importance. Unhappily, however, such is not
the case, and hence the primary judicial task lies in formulating
a technical analysis which properly embodies two fundamental
considerations. The courts should initially reduce to a minimum
errors in the fact-finding process itself. In addition, although some
error will be inevitable, the lack of precise measuring instruments
requires the courts to generate principles of market delimitation
which, in the more ambiguous cases, will be designed to preserve
the objective which has been deemed to be of primary importance.
It might follow from the foregoing that it would be appropriate
to initially consider the relative importance of efficiencies and
market power before proceeding with the analytical treatment of
market delimitation. Nevertheless, the former issue is itself worthy
of detailed consideration, and hence for organizational purposes,
the writer has relegated the necessary discussion to a later place
in this article. It is important only to note that vagaries inherent in
the fact-finding process will on occasion make it necessary to import
the conflict between power and efficiency into the market delimit-
ation process itself.
a. Market Power Derived Through Unilateral Action
1. Market Share as an Indicant of Market Power
The traditional competitive model insulates the consumer against
abusive pricing techniques by permitting him to look to a number
of sources for the product he requires. Thus, where many different
enterprises produce identical items, a simple headcount of the
number of participating firms and an analysis of their respective
market shares will reveal whether there exists a sufficiently atomistic
structural environment.
More difficult problems arise where a sole producer of one item
alleges that he faces effective competition from producers of quali-
tatively different substitutes. The dispositive legal, as well as eco-
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CANADIAN COMBINES LAW
nomic issue, then becomes the importance which users attach to
the distinction between different products. Economists purport to
measure the “cross-elasticity of demand” by examining the effect
of a price change on one item upon the sales of another. American
courts have traditionally used the concept of cross-elasticity, or in
lay terms, the interchangeability of alternate products, to define
the relevant market, and have then proceeded to evaluate the power
of the competing firms in terms of their respective market shares,2 6
taking into consideration existing or anticipated structural con-
ditions.3 7 Perhaps the most important characteristic of this two-
step approach is that it does not entail a comparative analysis of
the production costs of products which allegedly form part of the
same market. By holding that the existence of monopoly power
“… ordinarily may be inferred from the predominant share of the
market”,38 the American Supreme Court has (properly, in this
writer’s view) demanded strong empirical evidence that lower costs
and the concomitant power to unilaterally exclude competition
actually exists and, in so doing, has chosen performance as the
primary indicant of market power. While it is true that the growing
judicial fear of incipient oligopoly has, for merger cases at least,
the fact that
those submarkets must
3GSee by way of example only, United States v. Grinnell Corp., 384 U.S.
563, 16 L. ed. 2d. 778, at pp. 786-789 (1966); United States v. Continental Can
Co., 378 U.S. 441, 12 L. ed. 953, at pp. 963 and 965 (1964); Brown Shoe Co. v.
United States, 370 U.S. 294, 8 L. ed. 2d. 510, at pp. 535-536 (1962). The statement
by Warren, CJ., ibid., to the effect that within a broad market itself determined
by the cross-elasticity principle “… well-defined submarkets may exist which
in themselves constitute product markets for antitrust purposes,” does not
alter
themselves be determined
according to the same rule. Note that of the six criteria used to identify
a submarket, one is merely a statement of the cross-elasticity principle itself,
and four contain qualifying words such as “peculiar”, “unique”, or “distinct”,
which tend to indicate the absence of cross-elasticity. The only novel criterion
seems
the
distributional channels in the definitional process itself. See Jones, op. cit.,
n. 34, at p. 409 where the author states that “the six criteria enumerated by
the court… are the same criteria which establish or identify the broad
market.” It is submitted that the true impact of Brown Shoe lies in its
hardened antimerger philosophy rather than a significant change in analytical
methodology; United States v. E. I. DuPont de Nemoures & Co., 351 U.S.
377, 100 L. ed. 1264, at pp. 1282-83 (1956).
37 United States v. Continental Can Co., supra, n. 36, at p. 965: “The merger
must be viewed functionally in the context of the particular market involved,
its structure, history, and probable future.” Brown Shoe v. United States,
supra, n. 36, at p. 540; United States v. Philadelphia National Bank, 374 U.S.
321, 10 L. ed. 2d. 915, at p. 947 (1963).
to be that of “specialized vendors,” which would
include
38 United States v. Grinnell Corp., supra, n. 36, at p. 786.
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lessened the importance of market share as a criterion of collective
market power, the analytical method of predicating market defini-
tion upon the cross-elasticity principle itself has remained un.
changed 9
Certain commentators have contended that the concept of cross-
elasticity in itself may lead to an inappropriately broad delimitation
of the relevant market in the absence of
… a consideration of costs, so that these substitutes will be excluded
where the Government shows that at prices producing a high cross-
elasticity the alleged monopolist has a substantial cost advantage.
… The producer with a substantial advantage in comparative preference-
cost ratios has what the Court calls monopoly power –
the power to
control prices or exclude competition 0
The substance of the argument is that the failure to consider
comparative costs might immunize from the strictures of the
Sherman Act 41 a monopolist who has the power to exclude com-
petition, but who has chosen not to do so. While such corporate
benevolence is conceivable, it is clear that a comparative cost
analysis is not a proper device to detect unexercised power. For
one thing, experience with the Robinson-Patman Act 42 has shown
that it is virtually impossible to evaluate the costs of even a single
producer with any degree of precision.43 For another, the deter-
mination of cost data, like the estimation of market share, is liable
to the objection that the inefficient monopolist might escape the
proscriptions of the Act. As we shall see 44 it is this latter difficulty
which constitutes one of the central issues in formulating an ap-
proach to market delimitation consistent with the underlying policy
objectives of Combines law.
39 United States v. Von’s Grocery Co., 384 U.S. 270, 16 L. ed. 2d. 555, at p.
561 (1966); Brown Shoe Co. v. United States, supra, n. 36, at p. 538; in United
States v. Philadelphia National Bank, supra, n. 37, at p. 946, the Supreme
Court seemed far more concerned with basing its decision upon the percentage
market occupancy of the defendant.
4 0 Turner, Antitrust Policy and the Cellophane Case, (1956-57), 70 Harv. L.
Rev. 281, at p. 309. Other authors seem to agree, see Broadley, Oligopoly
Power Under the Sherman and Clayton Acts – From Economic Theory to
Legal Policy, (1966-67), 19 Stan. L. Rev. 285, at p. 351; Kaysen and Turner,
Antitrust Policy, (1959), at pp. 101-102.
4126 Stat. 209 (1890), as amended, 15 U.S.C. ss. 1-7 (1959).
4249 Stat. 1526 (1936), as amended, 15 U.S.C. s. 13, 21(a) (Supp. v. 1964).
43See McGee, Price Discrimination and Competitive Effects: The Standard
Oil of Indiana Case, 23 U. Chi. I. Rev. 398, at p. 399, n. 2. See also Panel
Discussion, The Robinson Patman Act, (1966), 30 A.B.A. Antitrust LJ. 41,
at p. 42.
4 4 See infra, pp. 506-509.
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2. Excessive Profits as an Indicant of Market Power
The exclusion of competition is only one symptom which may
reveal underlying market power in view of the potential ability which
a manufacturer may also have to exact excessive prices. Where, as
in Alcoa 4 5 the potential strength of a substitute qualitatively iden-
tical to the primary product is limited only by a fixed amount
such as transportation or tariff costs, a court is justified in assuming
identical production costs and using the differential as an index
of pricing power upon which to base a delimitation of the market.46
Low profits in the face of substantial and unequivocal cost ad-
vantages offer clear evidence of inefficiency, and hence should not
be considered as a mitigating factor to a charge of monopolization.
Where, however, the substitute is qualitatively different, pricing
power will be based not only upon costs, but upon interchangeability
as well, and hence a rational seller will take the latter factor into
consideration in determining the price at which he can maximize
profits. In these circumstances, the critical measure of pricing
power will be the extent to which the price at which cross-elasticity
occurs exceeds the producer’s costs, or alternatively, the difference
between the costs for manufacturing the primary and substitute
products where the latter cost is itself greater than the price at
which cross-elasticity would occur. Since either of these disparities
will be reflected in the earnings of the efficient monopolist, the
courts may justifiably rely solely upon a finding of excessive profits
in making a determination that undue pricing power actually exists.
One might well ask why the cross-elasticity principle is necessary
at all if exhorbitant profits are taken as per se evidence of monopoly
power. While the concept is of little aid in further evaluating the
extent of the power, it nevertheless sheds light upon its source, and
hence is a useful diagnostic device. By permitting the courts to
compare the relative profit rates of the producers of close substi-
tutes, it facilitates the determination of whether pricing power
exists unilaterally or collectively. Excessively high profits shared
45 United States v. Aluminum Co. of America, 148 F. 2d. 426.
461n United States v. Corn Products Refining Co, 234 Fed. 964, at pp. 975-
977 (1916), Judge Hand theorized that it would be proper to exclude potential
competition from the market on this basis. It is important to note, however,
that his reasoning was founded upon two assumptions both of which were
unverified by the evidence before him. At p. 975, he assumed that “… the two
commodities compared are indistinguishable in use…” and, on the following
page, that one process was more expensive than the other.
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by all participating firms would indicate the existence of underlying
oligopoly power.Y
3. The Problem of the Inefficient Monopolist
It is true that reliance upon excessive profits or predominant
market share as a criterion of unlawful power immunizes the
inefficient monopolist who unknowingly destroys the only evidence
which would otherwise illuminate his true character. As already
noted, a comparative cost analysis would be of little diagnostic use
in view of its vulnerability to the same objection. It is undoubtedly
this drawback which has prompted one noted authority to advocate
the “per se exclusion of qualitatively distinct substitutes.” 4 In his
view, the monopolist has the choice to overlook possible efficiencies
in favor of “the quiet life”, 49 and it is this alternative which antitrust
policy should attack.50
Before proceeding
to more important policy considerations,
the writer would comment upon this anthropomorphic conception
of the corporate monopolist as an inherently slovenly creature. The
monopolist, like his counterpart in a more competitive market, will
invariably strive to reduce costs, for this is one of the primary ways
in which he can augment his profits. With pricing policy ultimately
shackled by the demand curve for his product, he will inevitably
cast a wary eye towards costs to ensure that inefficiencies are not
emasculating a sizeable portion of revenues which are, in the last
analysis, immutable. To contend that he would consciously exercise
a choice in favor of inefficiency presumes such irrational conduct
that merely stating the suggestion warrants its rejection as a valid
policy consideration. Indeed, the very finding that oligopoly power
is significantly related to excess profits affords strong empirical
evidence which militates against this conclusion.51
4
7 Bain, op. cit., n. 2, at p. 377. This of course assumes substantial overlapping
among the end uses of the substitute products.
4 8 Turner, supra, n. 40, at p. 312.
49 Ibid., at p. 310.
50This reasoning unquestionably was one of the assumptions underlying
the judgment in Alcoa, supra, n. 45. After agreeing at p. 427 that a profit of
10 per cent “…could hardly be considered extortionate”, Judge Hand
continued at the same page to say that “…the mere fact that a producer
having command of the domestic market has not been able to make more
than a ‘fair’ profit is no evidence that a ‘fair’ profit could not have been
made at lower prices.” (citing United States v. Corn Products Refining Co.,
supra, n: 46).
5JSee in this regard, Bain, Industrial Organization, op. cit., n. 2, at
pp. 411-416, where the author discusses the result of a study on industrial
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The foregoing does not imply that all monopolists will be as
efficient as firms participating in atomistic industries, where, in
theory at least, competitive forces will systematically eliminate
those enterprises which fail to realize the potentials for cost savings.
Hence the question arises as to what sacrifices Combines policy
should make in order to disband the monopolist who, though trying
to produce at the lowest costs possible, nevertheless fails to do so.
The salient point is that while the exclusion of distinct substitutes
will invariably eliminate the inefficient monopolist, it will also lead
to the unnecessary dissolution of firms already subject to the
effective discipline imposed by alternate products. In the writer’s
view, the potential losses from smaller scales of production in
addition to the costs of dissolution militate against the per se rule 2
Thus, in addition to being predicated upon the unwarranted
assumption that monopolists are per se inefficient, the exclusion
of distinct substitutes might well do more harm than good. At any
rate, the burden lies with those supporting the rule to demonstrate
that inefficiencies inherent in the undetected monopolist are of
such a magnitude as to justify its indiscriminate application. In
the absence of empirical evidence, it would appear that the inevitable
vagaries render the rule too crude to apply on a general basis.
Canadian courts would unquestionably refrain from invoking
such an unjustified presumption as the basis for a conviction. Since
Hodge’s case, the rule governing the judicial finding of facts based
upon circumstantial evidence and prejudicial to an accused has
been
…not whether the facts are consistent with the prisoner’s guilt, but
whether they are inconsistent with any other rational conclusion. 3
profits between 1936 and 1940. Of the forty-two industries examined, those
in which the largest eight firms supplied seventy per cent or more of
industry output earned significantly higher profit rates
than the less
concentrated industries. It is important to note the author’s emphasis at
p. 413 that “…within either group the profit rate was not significantly
related to concentration.” Other investigators have also found that a positive
relationship exists between industry profit rates and monopoly power as
roughly represented by concentration ratios. See Fuchs, Integration, Concen-
tration, and Profits in Manufacturing, (1961), 75 Q.J.E. 278; Weiss, Average
Concentration Ratios and Industry Performance, (1962-63), 11 J. Indus. Econ.,
237. For a theoretical review of the matter, as well as a reply to certain
methodological criticisms of
technique, see Kilpatrick,
Stigler on the Relationship Between Industry Profit Rates and Market
Concentration, (1968), 76 Sour. Pol. Econ. 479.
the investigative
52 See infra, n. 109 and accompanying text.
53R. v. Hodge, (1838), 2 Lew. C.C. 227.
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While few technocrats view themselves as “prisoners”, they are
nevertheless entitled to all the protection applicable to a criminal
proceeding. As a result, it would be exceedingly difficult for the
Crown to prove the inefficiency of a producer whose behavior is
limited only by qualitatively distinct substitutes: a defendant could
always plead that his exorbitant costs were the inevitable result
of unavoidable defects inherent in the production process itself.
How then can we account for the following remarks of Casey, J.,
speaking for the Quebec Court of Appeals, wherein he rejected
the plea that paper matches competed with the wooden matches
which the defendant company produced ?
It is true that the manufacture of lighting devices, whatever be the type
or kind, can be regarded as a general class of business which would
include wooden matches. But it seems strange to suggest that within
the general class there cannot be as many types of businesses as there
are species of devices.5 4
This reasoning, adopted by the Restrictive Trade Practices Com-
mission in the Propane Investigation case, 5 amounts to the per se
exclusion of distinct substitutes. In view of the absence ot any
discussion relating to the presumed inefficiency of the monopolist,
it seems clear that these decisions were to some extent predicated
upon non-economic considerations. The fact that only one Canadian
decision 5 has given even passing notice to efficiencies as a proper
consideration of Combines policy seems consistent with the adoption
of the per se rule. That, of course, does not make it correct; on the
contrary, it merely indicates that the current judicial conception
of a unidimensional approach concerned only with the dissemination
of undue market power has manifested itself in the analytical
treatment of market delimitation.
Nevertheless, two recent decisions should be noted in which
Canadian courts indicated that substitute products, although dis-
tinct from the primary item, might be treated as part of the same
market. In R. v. J.W. Mills and Sons Ltd. et al,”6(a) Gibson, I. im-
pliedly accepted that doctrine but held, nevertheless, that water
carriers cannot properly be said to compete with rail transportation.
Unlike the Eddy Match decision, his reasoning was not founded
54Eddy Match Company Ltd. et at. v. The Queen, (1954-55), 109 C.C.C. 1,
at p. 14.
55 Monopoly in the Production of Propane, British Columbia, Ottawa, 1965,
at p. 65. In the Cellophane decision, supra, n. 36, Warren, C. J. reasoned in a
similar manner.
5 6 R. v. Canadian Coat and Apron Supply Ltd. et at., supra, n. 32, at p. 74.
56a (1969), 56 C.P.R. 1, at pp. 34 et seq.
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CANADIAN COMBINES LAW
upon a per se exclusion; it was based upon the economically sound
principle that the demand of users requiring rapid transportation
was necessarily inelastic and accordingly, cross-elesticity sufficient
to justify including the two forms of transportation in the same
market was lacking. 5 c)
4. Discriminatory Pricing as an Indicant of Market Power
The adequacy of the traditional two-step approach which this
writer endorses is limited to the situation where cross-elasticity is
uniformly distributed amongst the dependent purchasers. More
subtle issues arise when certain buyers lack adequate substitutes,
that is, where cross-elasticity does not extend to all users. In these
circumstances, it will not suffice to merely define permissible
market power in terms of market share or pricing power. The
additional question arises as to whether the Act protects specific
buyers whose dependence substantially exceeds the norm.
It was Warren, C.J.’s views, dissenting in the Cellophane case,51
that antitrust law has as its purpose the stimulation of competition
which extends to all buyers, and that accordingly, the defendant
was possessed of monopoly power. In the subsequent Grinnell case 58
the Court seemed to agree. In finding monopoly power, Douglas, J.
. the high degree of differentiation means that
reasoned that “…
for many customers only central station protection will do.” -9 The
Court did not, however, articulate whether the differentiation found
rendered the defendant a monopolist because of an excessive number
of dependent users, or as a result of the abnormally high reliance
of specific buyers, whatever their number, upon the services in
question. While the former reason would merely amount to a
straight application of the cross-elasticity principle, it would appear
that the language cited impliedly modifies, at least in part, the
Cellophane rule.
It is significant that the mere disparity among demand elasticities
for the end uses of a given product will not in itself assure that
above-normal profits enure to the manufacturer. To capitalize upon
the varying dependencies of his customers, the producer must have
a vehicle through which he can effect a discrimination in price
5ob See also R. v. St. Lawrence Corp. Ltd., (1967), 51 C.P.R. 170, at p. 176
where solid fibre board containers were held to form part of the same
market as corrugated containers.
57 Supra, n. 36, at p. 1296.
58 Supra, n. 36.
59 Id., at p. 788.
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between different classes of buyers,” and in addition, prevent
arbitraging amongst users. Typically, the courts could prevent him
from generating the necessary mechanism without tampering with
the market definition process itself. Thus section 32(1)(c) of the
Combines Act would proscribe any attempt to control the channels
of distribution through vertical agreement. If the control was
derived through merger in circumstances amounting to a lessening
of competition, the courts could prevent the exercise of power by
ordering the defendant to release his interests in the distributing
facilities. A close reading of section 2(e) reveals, however, that
section 31(1)(b) would be inapplicable where the manufacturer
gains control over the channels of distribution through merger at
the time he begins production or through internal expansion at a
later date. In the former situation, he may be said to limit, but not
to lessen competition; in the latter, he has not merged at all. Never-
theless, where the exclusive position of the manufacturer is derived
from a patent, sections 30(c), 30(d), and 30(v) confer upon the
Exchequer Court the jurisdiction to take similar remedial measures,
irrespective of how the discriminatory power was actually achieved.
A sole producer owing his position to important scale economies
might well be able to implement a discriminatory pricing scheme,
and hence it would be vital for him to prevent arbitraging among
users without having recourse to tie-in devices 1 Clearly, the possi-
bility of imposing the necessary restrictions would materially depend
upon the nature of the product itself, and the extent to which
different end uses might require slight alterations in size, shape,
or color, of its primary characteristics. Physical properties pre-
venting handling or storage would be of significant assistance.
In these circumstances, the sanctions embodies in the Act would
be predicated upon a finding of monopoly i ower.
60The proscriptions of section 33A(1) (a) of the Act, like those of the
Robinson-Patman Act in the United States, are limited to discriminations
in price between competing purchasers.
61 The writer would have thought tying arrangements to be violative of
section 32(1)(c) of the Act. See however, Report On an Inquiry Into the
Distribution and Sale of Automotive Oils, Grease, Antifreeze, Additives, Tires,
Batteries, Accessories and Related Products, R.T.P.C. No. 18, Ottawa, 1962.
At p. 232 the Commission recommended that the Act be strengthened with
respect to tying arrangements in any field of trade. The implication is that
the Commission did not think the existing provisions to be dispositive of
the matter. Nevertheless the inquiry did not constitute a formal prosecution
under the Act, and hence the recommendation would be of little assistance
to a defendant charged under the existing provisions.
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Hence, the fundamental question is whether control over distrib-
utive facilities is a valid consideration in market delimitation.2 It
is true that a negative reply would force the courts to assume a
rigid stance: it would be incumbent upon them to either system-
atically disband efficient producers who are unable to seize upon
the dependence of a category of customer, or to consistently deny
protection to the latter where market power is being effectively
employed. A positive reply, however, would constitute an unwarrant-
ed judicial exercise of an essentially legislative function. It would
in effect extend the application of section 33A to non-competing,
as well as competing purchasers, which is clearly contrary to Parlia-
mentary intent. Price discrimination being essentially a behavioral
problem, it would be wrong for the courts to recharacterize the
issue in structural terms in order to justify a conviction. If an
extension of section 33A is in fact justifiable on policy grounds,3
it should be effected by amendment rather than by judicial law-
making.
5. In Recapitulation
We have seen that the indicants of market power may take the
form of undue market share evidencing the ability to exclude com-
petition, excessive profits, or discriminatory pricing techniques.
Accordingly, the central judicial problem lies in developing a
method of market delimitation which will reveal these symptoms,
in order to diagnose the underlying deficiency. In this writer’s view
the traditional two-step approach adopted by the American courts
is an acceptable method for determining whether a defendant has
02See this writer’s comments on the Brown Shoe Case, supra, n. 36.
63See in this regard, Bork, The Rule of Reason and the Per Se Concept:
Price Fixing and Market Division, (1965-66), 75 Yale L.. 373, at pp. 416-424,
where the author contends that a prohibition against this kind of discrimi-
nation “might easily” do more consumer harm than good. He concludes
that the ultimate effect would be “indeterminate” in the absence of knowledge
of the various demand curves for the items in question. By implication, he
seems to be saying that practical considerations such as difficulties of proof
and administrative costs, should militate against the prohibition. It is difficult
to say whether this argument is applicable to the Canadian economy where
much smaller markets would make scale economies considerably more
important. As a consequence, one might speculate that firms would be far
less likely to react to a prohibition against price discrimination by significantly
restricting output. Nevertheless, what little evidence there is does seem to
indicate that plant sizes in Canada are only slightly smaller than their
counterparts in the United States. See Rosenbluth, Concentration of Canadian
Manufacturing Industries, (1957), at p. 85.
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the power to exclude competition. Excessive profits are a useful
evidentiary device, but they need not invariably be shown in order
to justify a finding of undue market power.64 Low prices, yielding
equally low profits in concert with a growing market share may
well indicate that a defendant does in fact have the power to charge
excessive prices at a subsequent date.
Where, however, the allegation charges that the defendant pres-
ently has undue pricing power, profit levels should themselves be
dispositive. The resulting immunity of the inefficient monopolist
(which also flows from the criterion of market share) finds its
justification in the fact that existing analytical techniques are unable
to distinguish between this form of corporate creature and other
enterprises whose behavior is subject to the control of substitute
products. Hence the fundamental question with which both courts
and administrators must deal is the extent to which profits must
exceed a normal rate of return in order to warrant the finding of
unlawful pricing power.
Clearly no hard and fast lines can be drawn. While a close reading
of Alcoa 65 and Corn Products”0 tends to indicate that American
courts, for qualitatively similar products at least, would hold any
pricing power to be unlawful, that is only theory, and is unworkable
as a general rule. Economic yardsticks lack the necessary refine-
ments to detect the minute degrees of market power which may
be vested in specific firms. In addition, the principle is essentially
incompatible with the lawful attempts which enterprises make
to differentiate their product and thereby assure themselves of a
certain amount of predictable consumer dependence. The actual
profit level which the courts may accept as evidence of excessive
pricing power is itself relatively unimportant, 7 provided that the
methodological analysis is sound. In this regard, efficiency con-
siderations should and must be regarded as mitigating factors.
64The statement by Williams, CJ.Q.B. in R. v. British Columbia Sugar
Refining Co., supra, n. 35, at p. 633 to the effect that the Crown “… must
establish excessive or exorbitant profits or prices,” is clearly an unwarranted
requirement and should be rejected in future decisions.
65 Supra, n. 45.
60Supra, n. 36.
6T Bain, supra, n. 2, at p. 413, found that the average annual profit rate of
the highly concentrated industries was 11.8% of equity. Taking into account
additional inflationary factors, one might venture to estimate that consistent
profits in the order of 15 per cent would be an indication of some appreciable
degree of pricing power.
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Discriminatory pricing, while being a symptom of underlying
market power, might be more exactly characterized as a behavioral
attempt to capitalize upon unique dependencies of specific pur-
chasers. The underlying analytical problem is whether market def-
inition should be predicated upon the existence of a discriminatory
pricing scheme which does not in itself violate any of the behavioral
proscriptions embodied in the Combines Act.
b. Market Power Derived Through Competitor Coordination
Collective competitor action may take the form of private agree-
ment, oligoplistic interdependence, or merger. Since mergers are
merely agreements constituted on an irrevocable basis, the analytical
properties of these two devices are closely aligned for the purposes
of this discussion, and hence the writer will treat them as a single
category, making the appropriate distinctions where necessary. It
is important to note, however, that the separate treatment of market
power derived from mergers and agreements on the one hand, and
interdependence on the other, is largely arbitrary, because one of
the central problems which the Canadian courts have still to recog-
nize, is the oligopoly power which may result from excessive inte-
gration.
1. Agreement and Mergers
As noted previously, the corporate resultant of a merger initially
has no behavioral history which may reveal the existence of under-
lying market power. Hence the defendant’s market share considered
in conjunction with other structural features of the relevant in-
dustry is the only criterion which the courts have at their disposal
to predict whether effective competition remains. Once again, any
attempt to draw immutable guidelines would be doomed to failure
as a general policy rule. Conditions of entry, as well as concentration
levels, significantly determine immunity from market forces, and
hence one might venture only to say that permissible market
share should bear a crude inverse relationship to the height of
entry barriers, 8 and a positive relationship to the number of
competing firms. 9
68 To the extent that market share and absolute size correspond, one might
well argue that the former may to some extent constitute in itself a
substantial entry barrier. For an American decision prohibiting a merger
on these grounds, see Federal Trade Commission v. Proctor & Gamble Co.,
386 U.S. 568, 18 L. ed. 2d. 303, at p. 310.
69 See supra, n. 57.
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While Canadian courts have given but scant attention to market
occupancy data, there are clearly two divergent viewpoints as to
the point at which market power itself assumes a character contrary
to the public interest. The judgment of Cartwright, J. in the
Fine Papers case represents one line of reasoning:
… it is the arrogation to the members of the combination of the power
to carry on their activities without competition which is rendered un-
lawful.70
The difficulties inherent in this contention are overt. First, it
forces the court to delve into the massive evidence relating to
the complex question of market power, and thereby precludes the
generation of any expedient per se rule of illegality based upon
specific agreements where the defendant fails to allege efficiency
or other mitigating considerations. This deficiency also characterizes
a similar viewpoint adopted by the Restrictive Trade Practices
Commission to the effect that
… an agreement is undue only if the conspirators have sufficient control
over the market to make it probable that they will succeed in their
intentions to lessen competition.iT
This reasoning is clearly incompatible with the text of the Act,
which provides that it is not the agreement, but rather the lessening
of competition contemplated by the agreement, which must be
undue. It does not however share the more vital deficiency of
Cartwright, J.’s requirement of monopoly power. The central weak-
ness of his analysis is that it would consistently fail to avert tenden-
cies towards oligopoly power. While it is true that interdependent
pricing will typically emerge between single firms rather than
groups of firms, it is nevertheless conceivable that a number of
intra-industry trade associations could be formed in order to come
within the permissive rule.
One might reasonably have expected that this reasoning would
carry little weight in subsequent decisions. Apart from its sub-
stantive weaknesses, the statement by Cartwright, J. was clearly
unnecessary to the decision in question, for the power derived
from the impugned arrangements was held to be monopolistic in
character. In addition, the learned Judge, who spoke only for him-
self and for Locke, J., was, in his own words, merely summarizing
70 Supra, n. 16, at p. 426. See also R. v. Beamish Construction, [1966] 2 O.R.
867, at p. 898. In the trial court judgment of the Fine Papers case, Spence, J.
reasoned in a similar manner: [1954] O.R. 543, at p. 565.
7′ Distribution and pricing of Pesticides, R.T.P.C. No. 37, 1, at p. 38, (1965).
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CANADIAN COMBINES LAW
the existing jurisprudence, and as others have pointed out, did
so incorrectly 72
Unhappily, judicial interpretation of the Combines Act, all too
frequently fails to confirm the reasonable expectation. By a peculiar
inversion of reasoning, McGruer, J. upheld a series of mergers in
the Breweries case 1 3 from which the defendant had derived a share
of the Ontario and Quebec beer markets amounting to 60%. After
the merger, the defendant faced competition from only one other
major producer in each of these provinces. The substance of the
holding was that the criterion of public interests embodied in the
Act must be interpreted “… in a legal sense and not in a social
sense.” 74 In spite of unequivocal legislative language to the contrary,
he contended that prejudice to the public interest must be equated
with an undue lessening of competition, and more particularly, with
Cartwright, J.’s misconceived interpretation of what form that
competition should take. Proceeding upon this assumption, he
dismissed the Crown’s complaint on the grounds that it had failed
to prove that the merger had “…. conferred on the accused the
power to carry on its activities without competition, or substantially
without competition.” 7′
Similar reasoning was invoked only months later in the Sugar
decision, 76 wherein judicial approval was given to a merger inte-
grating the only refineries of beet sugar in the Provinces of Manitoba
and Saskatchewan. Williams, Ci. held that the four existing
eastern refineries and the threat of foreign competition of cane
sugar imported over a tariff wall constituted effective competition,
in spite of the recommendations of the Restrictive Trade Practices
Commission made earlier in the same year to the effect that the
unduly high concentration of eastern refineries warranted structural
alterations in the form of a tariff reduction.77 The inexplicable
failure of the Crown to appeal either of these two decisions 78 or
72 Gosse, op. cit., n. 27, at p. 128.
73R. v. Canadian Breweries, supra, n. 32.
74Ibid., at p. 605.
76 Ibid., at p. 630.
76R. v. British Columbia Sugar Refining Co., supra, n. 35.
77 Report Concerning the Sugar Industries in Eastern Canada, Ottawa, 1960.
78Lyon, Recent Canadian Anti-Combines Policy: Mergers and Monopoly,
(1963-64), 15 U. of Toronto LJ. 155, at p. 165 speculates that, “[p]ossibly the
administration felt that its role of watchmen of merger practices would be
better served by not appealing: higher courts might have expressed just
enough agreement with the trial courts to dilute merger policy in a way
that government did not want.” As we shall see however, infra, the government
itself has treated these two cases as binding upon it.
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to institute court proceedings in the nine intervening years consti-
tutes a virtual abandonment of any Canadian policy attempting to
contain the tendency towards industrial concentration. Technocrats
may now proceed to implement a program of horizontal integration
ultimately designed to yield single-firm market power which, though
not quite monopolistic, is nevertheless compatible with profits
well above the norm. The few remaining giants in each industry
can then coordinate their behavior in the absence of overt agree-
ment, and thus unimpeded by legal considerations.
The writer does not oppose “bigness” where justifiable by cost
savings. The two merger decisions would have been correct in
both economics and law had significant efficiencies resulted. Yet
neither of these judgments gave any consideration to potential
efficiencies which might have enured to the producing firms. On
the contrary, Williams, C.J. expressly endorsed 79
the principle
articulated by McRuer, J.10 that it is not illegal “… for one corpo-
ration to acquire the business of another merely because it wishes
to extinguish a competitor.” The statement is absurd, for there
must be a motive underlying an acquisition. If the benefits lie
not in cost savings, then it seems justifiable to conclude that the
extinction will significantly affect the acquiring firm’s ability to
restrict output and extract higher prices from the public.8’
In spite of the foregoing, it is encouraging that most of the
decisions dealing with horizontal agreement, as opposed to ho-
rizontal merger, have not adopted Cartwright, J.’s stringent require-
ments of illegality. On the contrary, it has been generally held
that the proscriptions of the Act are not limited
… to those agreements only, which if carried into effect would give the
parties to it the power to carry on their business virtually without com-
petition, that is, virtual monopolization situations.8 2
79 Supra, n. 35, at p. 613.
80 Supra, n. 32, at p. 621.
81 For the same argument in reverse, see Bork, op. cit., n. 63, at p. 391,
that horizontal arrangements which do not
where the author contends
confer upon the parties the power to increase profits by restricting output
must necessarily have as their purpose the creation of efficiencies.
82 R. v. Faith and Shaver, (1967), 51 C.P.R. 126, at p. 128; R. v. Canadian
Coat and Apron Supply Ltd. et at., supra, n. 32, at p. 73. See also R. v. Abitibi
Power and Paper Co., (1960), 36 C.R. 96, at p. 148; R. v. Crown Zellerbach
Canada Ltd. et al., [1955] 5 D.L.R. 27, at p. 33; R. v. Northern Electric Co.
Ltd., [1955] 3 D.L.R. 449, at p. 485; R. v. McGavin Bakeries et al., (1951), 3
W.W.R. (N.S.) 289, at p. 317;. R. v. Electrical Contractors Association of
Ontario, (1961), 131 C.C.C. 145, at p. 159. See, contra, R. v. Burrows et al.,
(1968), 54 C.P.R. 95, at pp. 134-135.
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While most of the statements with but one exception 8 3 were not
necessary for the decision rendered in that monopoly power was
invariably found to exist, it nevertheless seems clear that a defense
based solely upon the absence of such power will not assure an
acquittal. 84 It would thus appear that Canadian courts have adopted
in part, but only in part, the per se rule applicable in the United
States.5 Like its American counterpart, the Supreme Court has
refused to treat economic justification as a legitimating factor to
a charge of price fixing.86 As we have seen, however, lower courts
have not adopted its reasoning that the resulting market power
is also irrelevant.87 One might perhaps make a reasoned prediction
that upon appeal the Supreme Court would merely reaffirm its
prior holding, but for the present it would appear that in the lower
courts at least, the Cown must prove that an impugned agreement
extends to a substantial portion of the relevant market in order
to achieve a conviction.8 7a
Hence a serious disparity has developed between the permis-
sible degree of a market power which may be generated through
horizontal agreement, and that which may lawfully result from
merger. The anomaly underlying the difference in judicial opinion
is that the principle espoused by Cartwright, J. has been imported
83The only exception is R. v. Abitiby Power and Paper Co., supra, n. 82,
wherein Batshaw, J. seemed unsure as to whether the defendants possessed
monopoly power. He concluded at p. 155 that there was not “…such an
effective competition as to relieve the accused from the charge that their
conspiracy was ‘undue’ “.
84 The contentions of Gosse, op. cit., n. 27, at p. 137 to the contrary are
badly dated. Moreover, his reliance upon the Fine Papers case to support
the proposition that “…an agreement must virtually eliminate competition
before it becomes undue” is wrong. As the writer has already pointed out
supra, page 498, both Kellock, J., with whom Rand, Fauteux, and Kerwin, JJ.
concurred, and Taschereau, J. held that a conspiracy in the absence of
power was nevertheless illegal. As we have seen, lower courts have refused
to adopt this reasoning, but at the same time have rejected the proposition
that monopoly power is itself a precondition of illegality.
85See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 84 Law ed.
1129, at p. 1169, n. 59 where Douglas, J., speaking for the Supreme Court
rejected both economic justification or the absence of actual power to fix
prices as a valid defense to a charge of price fixing.
scHoward Smith Paper Mills et al. V. The Queen, supra, n. 16.
87 Supra, n. 32.
87a Once the Crown has satisfied this burden, however, the accused will
not be able to exculpate himself by demonstrating that the prices exacted
were reasonable, and that the consuming public was not deprived of the
product in question: R. v. Burrows et al., supra, n. 82, at pp. 134-135.
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[Vol. 16
into the law governing mergers, but has been rejected in cases
characterized by factual situations more closely aligned with the
circumstances from which it arose. While one might think the
disparity justifiable on the grounds that mergers are more likely
to yield efficiencies favorable to the public interest, a close reading
of the cases indicates that such effects have been deemed irrelevant.
At any rate, it is doubtful whether the distinction is well-founded
as a general policy rule, since the greater efficiencies incident to
mergers may in specific cases be less important than the prejudicial
market power resulting from the perfect coordination achieved.
That aside, its central weakness lies in the implicit dichotomy
between monopoly and non-monopoly market control and the cor-
responding failure to deal with the pervasive issue of oligopoly
power. It is to this problem that we now turn.
2. Oligopolistic Interdependence
As already noted, the primary defect inherent in both the
Breweries and Sugar decisions lies in the judicial adherence to a
concept of competition compatible with oligopolistic interdepend-
ence. “Price leadership” is merely one of the more overt forms
which the joint action might take. The peculiar character of this
kind of behavior is that it may result in the absence of any private
communication amongst the participating firms. Since each enter-
prise has a sizeable market share, any change in policy resulting in
an increase in sales for one firm will of necessity result in a
significant and identifiable decline in the market share of its
competitors. Accordingly, each participant is in the position to
predicate his pricing or product quality upon the anticipated reaction
of the other competing firms. Since the potential reactions are
limited in scope, given the assumption that all parties seek to
maximize profits, the firm initiating a price or product change will
do so in a manner compatible with the interests of his competitors,
and thereby avoid a hostile response on their part.8
Imperfect
knowledge and varying costs may well preclude the achievement
of earnings characteristic of the single-firm monopolist, 9 but the
88 For a more detailed discussion of the processes involved in interdependent
action, see Bain, op. cit., n. 2, at pp. 274 and 279-281.
89 It is unlikely, as Broadley, op. cit., n. 40, at p. 189, seems to imply, that
the resulting profit levels “… may be, not unnaturally, the same price that
a monopolist intent upon maximizing profits would charge.” If monopoly
profits were the typical product of interdependence, economists would not
be plagued by the wide variations actually observed. A price level allowing
all sellers to maximize profits would require, according to Turner, The
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CANADIAN COMBINES LAW
resulting profit levels may nevertheless be significantly above those
which would prevail in a truly competitive atmosphere 0 Since
this kind of communication could not result in efficiency-producing
joint action, it clearly runs contrary to the public interest.
The only difference between this activity and other forms of
collusive action is that the communication can take place indirectly
through the market system itself. Since the effects approximate
those which would flow from private agreements in more atomistic
industries, it is meaningless to predicate the legality of the resulting
market power upon the character of the communicative process
itself. Unhappily, by overlooking the inevitability of interdependence,
this is precisely what the courts have done in creating such perm-
issive merger law.
It is true that the proscriptions against collusive action embodied
in the operative legislation 91 were dependent upon a finding of
agreement or arrangement. Hence it might have been argued that
since interdependence does not come within the purview of these
words, it is improper to disallow a contemplated merger on the
grounds that the remaining firms could engage in behavior not
itself proscribed. This reasoning, however, neglects the underlying
policy articulated in the Act. The governing criterion was not how
is likely to operate to the
detriment or against the interest of the public.. .” 2 but whether
the public interest would be prejudicially affected. At any rate, a
technical argument can be countered with a technical response:
it is just as legitimate to include interdependent decision-making
under the broad rubric of an “arrangement” as it is to impute a
narrow meaning to that word 3
a merger trust or monopoly..,
….
No doubt the difficulties stem from the assumption that legal
sanctions must necessarily depend upon some form of deviant be-
havior. Consider the following remarks of the Restrictive Trade
Definition of Agreement under the Sherman Act: Conscious Parallelism and
Refusals to Deal, (1962), 75 Harv. L. Rev. 655, at p. 664, a “…hypothetical
case (having) no counterpart in reality.” For a theory purporting to account
for some of the determinants of the prices actually arrived at through inter-
dependence, see Felner, Competition Among the Few, (1963).
90 See supra, n. 57.
91 R.S.C. 1952, c. 314 as amended by S.C. 1953-54, c. 51, s. 2. As noted supra,
p. 493, the current legislation does not require an explicit agreement as a
precondition to a finding of collective monopoly power.
92 Ibid., s. 2 (vi).
93 For an identical argument applied to the meaning of conspiracy under
the Sherman Act, see Turner, op. cit., n. 40, at p. 665.
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Practices Commission, wherein it was careful to distinguish between
price leadership which involved prior communication and that which
did not:
The Commission believes that where a company that is a leader in an
industry announces a price increase or a change in terms privately to its
competitors, prior to announcing it publicly, and thereafter the leader
and its competitors implement the increase or the change, an inference
must be drawn that an agreement has been entered into among them.9 4
Keeping in mind that the industry in question was a tight oligopoly
sheltered by tariffs ranging from 10 to 35 per cent, it is clear
that the privacy of the communication is without significance. The
defect, structural in nature, could have been eradicated by a re-
duction in tariffs, thereby inducing foreign competition. The Com-
mission, however, failed to make any recommendations in this
regard, which tends to indicate that the behavioral characterization
contaminated its analysis of the substantive nature of the problem.
Similar reasoning was invoked in the Paper Board Investigation 9
to uphold a merger, although as a result, the coordination of com-
petitive behavior could be effected in the absence of an overt price
agreement:
There is no evidence, and probably there could be none, that any of
those mergers has put the acquiring company in a position to dictate
trading practices to others in the industry.9 6
Following the Breweries and Sugar decisions, the Commission held
that the Crown had failed to satisfy the test of monopoly or virtual
monopoly power. In so doing, it overlooked the issue of interde-
pendence and, as a result, failed to perceive that the real danger
lay in the collective monopoly power of the participating firms.
The Commission should not, however, be too harshly condemned
in the light of its recommendation that existing tariffs be removed.
Hence, in the last analysis, it did characterize the problem as struc-
tural in nature and thus it is difficult to understand why it approved
of a merger which could only further debilitate the structure of
an industry already seriously in need of alteration. The decision
to abide by judicial precedent no doubt accounts for the ultimate
holding, but at the same time raises serious questions relating to
the present administration of the Combines Act. In the writer’s
view, it is not the Commission’s function to act as an additional
94 Pricing Practices in the Pencil Industry, R.T.P.C. No. 31, Ottawa, 1, at
p. 50.
Shipping Containers and Related Products, R.T.P.C. No. 19, (1962).
95 Report Concerning the Manufacture, Distribution and Sale of Paperboard
96 Ibid., at p. 651.
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court of first instance, and hence it should consider itself governed
by economic principles rather than by legal doctrine. In this way
only can it perform its proper role of placing before the courts
appropriate theory upon which previous judicial reasoning can
be reexamined. 97
We have briefly referred to an assumption implicit in the Com-
mission’s reasoning, particularly in the Pencil Investigation,s to
the effect that legal restrictions upon corporate behavior should
in some way be retributive in nature. While this conception of
Combines law no doubt results from the philosophy of the Criminal
law of which it is a part, a basic difference between the two reveals
that the assumption is misplaced:
the consequence is of little
significance in the evaluation of criminal behavior, whereas public
detriment is, or should be, dispositive in assessing the conduct of
firms. It follows that the sanction for, rather than the legality of,
excessive power should be determined with reference to its cause.99
Even were it argued (improperly in this writer’s view) that some
moral or equitable justification is necessary to support this con-
tention, it is readily found in the fact that collusion derived through
either conventional agreement or oligopolistic interdependence is
merely a rational attempt to maximize profits at the expense of
the public. When stated in these terms it becomes clear that the
courts should seize upon the wide scope which they have to evaluate
the effects of different forms of conduct and, where feasible, levy
the appropriate behavioral or structural sanctions.
The salient point is that if any sanction is to be applied to inter-
dependent action, it must attack the structure from which it ema-
nates, because any behavioral penalty or injunctive order would,
in the words of one author, “… demand such irrational behavior
97 Unfortunately, however, the Director of Investigation and Research seems
to allow existing jurisprudence to bear decisive weight in deciding whether
to prosecute. See, Report of the Director, (1968), at p. 54, where decided
cases played an important role in allowing a merger in an industry already
dominated by four large companies. See also, Report of the Director, (1967),
at p. 38, where the Director decided not to apply for a prohibition order
because the evidence was inadequate to satisfy the jurisprudential require-
ment that the already existing monopoly power would thereby be further
strengthened.
98 Supra, n. 94.
09 Monopoly power derived from efficiency is the only exception which
comes to mind. In the words of one American judge, “… the Act does not
mean to condemn the resultant of those very forces which it is its prime
object to foster… “. See United States v. Aluminum Co. of America, supra,
n. 45, at p. 430.
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that full compliance would be virtually impossible.” 100 Appropriate
sanctions must be expedient, and a court order which purports to
force a defendant to close his eyes to public knowledge which would
enable him to maximize profits could hardly be so described.
The foregoing does not render insignificant the factual issue
as to the existence of a private agreement. Where a court concludes
from admissions, seized documents, inconsistencies in testimony,
or coordination which has eliminated the vagaries necessarily in-
cident to interdependence that such an agreement was in fact
constituted, it is justified in imposing a behavioral remedy upon
the premise that the structural environment was sufficiently atom-
istic to preclude the collusion in the absence of specific agreements.
The courts should not, however, in the interest of expediency,
generate per se rules to the effect that proof of stich agreement
irrebuttably indicates a sufficiently competitive environment. Private
agreement may supplement interdependent action and hence struc-
tural remedies may be required in addition to behavioral penalties.
It is important to note that economic theory does not advocate
the per se dissolution of oligopoly power. Thus, the small size of
a market may in itself militate against structural alterations in
view of the substantial inefficiencies which might result. In ad-
dition, the fact that in one-half of Canadian manufacturing industries
the largest nine firms account for eighty per cent of employment 101
indicates that a widespread attack upon interdependence would
entail such a substantial restructuring of the economy as to be
politically and socially unworkable. Clearly, the general policy
solution lies in prevention rather than cure. 0 2 Perhaps it would
be helpful to adopt and extend to certain classes of mergers the
British requirement that newpaper mergers be submitted for prior
approval.0 3 Certainly greater government commitment to the anti-
100 Turner, op. cit., n. 40, at p. 669.
101 Rosenbluth, Concentration in Canadian Manufacturing Industries, (1957),
at p. 22.
102The Director has himself expressed reservations with respect to the
remedy of dissolution. See Report of the Director, (1958), at pp. 21-23; see
also Report Concerning the Manufacture, Distribution and Sale of Paperboara
Shipping Containers and Related Products, supra, n. 95, at pp. 657-658.
103 Monopolies and Mergers Act, 1965, c. 50 s. 8. Certain commentators
have suggested that a rebuttable presumption of illegality should apply
to mergers involving companies who together control twenty per cent of
output. See Kaysen and Turner, op. cit., n. 3, at p. 133; Stigler, Mergers and
Preventive Antitrust Policy, (1955), 104 U. Penn. L. Rev. 176, at p. 182.
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merger effort is required. 14 While the writer does not endorse the
American judicial doctrine of condemning oligopoly in its incipiency
because the very word implies that the problem has not yet
arrived, 0 5 administrative and judicial endorsement of mergers which
reduce the number of competing firms from six to five, as in the
Indeed, the
Sugar decision, clearly does injustice to the Act.”,
current inertia makes one seriously wonder whether Canadian
anti-merger law was intended to be taken seriously in the first place.
The Conflict between Market Power
and Efficiency Considerations
We noted previously that by importing the concept of market
power into the analytic process, the courts have avoided the rigidity
inherent in a per se rule of illegality based solely upon a reduction
in the absolute number of independent business entities. In so doing
however, they have with but one exception 0 7 failed to give even
passing notice to efficiency considerations. The effect of this
omission is that one presumptive rule, based upon excessive market
1041n the fiscal year 1959-1960, total government expenditures under the
Combines Investigation Act amounted to half a million dollars, or less than
to the Canadian Government Travels
one-quarter
Bureau. See Rosenbluth and Thornburn, Canadian Anti-Combines Adminis-
tration 1952-1960, (1960), at p. 44.
the amount allocated
105Keeping in mind Bain’s findings, supra, n. 51,
it is clear that the
American Supreme Court has condemned a number of mergers well before
the critical point has been reached. In United States v. Pabst Brewing Co.,
the ten leading brewers accounted for 52.6
384 U.S. 546, at p. 551 (1966),
per cent of national sales; in United States v. Von’s Grocery Co., supra, n. 39,
the eight largest firms collectively were responsible for 40.9 per cent of sales;
in Brown Shoe v. United State, supra, n. 35, at p. 521, the largest twenty-four
shoe manufacturers accounted for only thirty-five per cent of the nation’s
output. Even those who have traditionally supported the Court’s incipiency
concept as a general policy rule have characterized the latter decision as
“unfortunate”. See Blake and Jones, In Defense of Antitrust, (1965), 65
Colum. L. Rev. 377, at p. 399. For doctrine criticizing the rigid antimerger
judicial philosophy, see the authorities cited supra, n. 30. See also Bork
and Bowman, The Crisis in Antitrust, (1965), 65 Colum. L. Rev. 363, at p. 368.
106 See also Report of the Director, supra, n. 96, at p. 49 where the Director
endorsed the merger creating a firm which would account for sixty per cent
of the relevant market on the grounds that entry barriers were low. As noted
previously, supra, n. 24, relatively free entry, does not ensure that dominant
firms in highly concentrated industries will not earn excessive profits on a
short term basis. The inevitability of imperfect knowledge renders perfectly
free entry a fictitious concept inapplicable to the real world.
107 R. v. Canadian Coat and Apron Supply Ltd. et al., supra, n. 32, at p. 74.
McGILL LAW JOURNAL
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power, has merely been substituted for another. It is unnecessary
to speculate why the law has assumed its current unidimensional
form –
the fact that judicial analysis has for the most part been
concerned with unequivocal price-fixing agreements no doubt forms
part of the answer. Suffice it to say that if Combines policy is to
be more reality than myth, both prosecutor and judge will have
to shed their garb as mere finders of facts and deal directly with
the conflict between “bigness” and efficiency.
The methodological difficulties which afflict efforts to measure
cost savings with any degree of precision clearly call for the ap-
plication of presumptive rules to the fact-finding process. In the
writer’s view, the only rationally justifiable rule would be one
which presumes efficiencies to exist where the integration fails to
yield the market power necessary to restrict output and raise
prices. 08 On the premise that businessmen do not act arbitrarily
and without motive, the absence of such power in itself warrants
the finding that efficiencies will enure to the firms in question.
The same reasoning does not apply where, incident to alleged savings,
there is an undesirable degree of market power. In these circum-
stances, the underlying assumption of rational business behavior
does not justify the conclusion that cost savings will result. The
generation of market power may well have provided the under-
lying motivation and hence the courts must look for independent
evidence that the alleged efficiencies actually exist, and then weigh
these against the prejudicial effects of the resulting market power.
Since a proper resolution of the conflict must ultimately be predi-
cated upon economic, social, and political considerations, the writer
will deal with each in turn.
a. Economic Considerations
In 1959, Harberger 10 9 reported the results of a study which have
since been confirmed as applicable to Canada,” 0 that the total
welfare loss resulting from misallocation of resources incident to
108 See Bork, op. cit., n. 63, at p. 391. The rule suggested runs contrary
to the dicta of the majority of the Supreme Court who, as we have seen,
have refused to consider the question of market power. Lower courts,
however, seem to be on the verge of grappling with the issues of both
market power and efficiencies, and hence the presumptive rule herein
advocated could simplify their task, while at the same time avoiding the
rigidity emanating from the reasoning of the Supreme Court.
10OHarberger, Using the Resources at Hand More Effectively, (1959), Am.
Econ. Rev. Proc. 134.
“0Shwartzman, The Burden of Monopoly, (1960), 68 Sour. Pol. Econ. 627.
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market power in the American economy amounted to approximately
one-tenth of the national income, or to just over two dollars per
capita. When this virtually insignificant amount is compared to
the substantial losses resulting from technical
inefficiencies, it
becomes clear that economic theory would unhesitatingly reject
a per se rule which refuses to consider cost savings as a factor
which might legalize undesirable market power. A recent report of
the Economic Council of Canada 11 estimating that in 1963 “… the
net value added per employee was about 23 per cent lower in
Canada than in the United States …
” 112 clearly indicates that
certain forms of horizontal coordination would have a net effect
of increasing the collective welfare of Canadian society.
It is true that competitive forces will not coerce firms possessing
market power to redistribute savings to the consumer. Nevertheless,
the primary question for the purposes of Combines law lies not in
identifying the persons to whom the benefit enures, but rather in
the determination of whether there is any benefit at all. The former
issue relates to problems of income distribution and transfer pay-
ments, and while effective tax policies would be hard pressed to
compensate for allocative inefficiencies, they might nevertheless
be geared to more effectively control the manner in which powerful
corporations choose to dispose of their excess profits. By way of
example, it has long been recognized that large advertising ex-
penditures are wasteful to the extent that they cease to have ad-
ditional informational value,”13 and hence public authorities would
be justified in reconsidering the legitimacy of treating these sums
as valid business expenses.
The latter question, which should be of paramount importance,
can only be properly answered by comparing, on a case by case
basis, the allocative inefficiencies incident to market power with
the technical savings derived.” 4 This formula does not imply that
the courts should resolve all combines problems by having recourse
to the graphs of the economist. It merely indicates an analytical
” Economic Council of Canada, The Canadian Economy From the 1960’s
to the 1970’s, Queen’s Printer, Ottawa, 1967.
11 Ibid., at p. 156.
113 See Bain, op. cit., n. 2, at p. 389. In addition, high expenditures tailored
to create high consumer dependence can only have the effect of increasing
allocative inefficiencies which may already be the consequence of structural
deficiencies.
314 For a model purporting to deal with this comparison, and a discussion
of its implications for American anti-trust policy, see Williamson, Economies
as an Antitrust Defense, The Welfare Tradeoffs, (1968), 58 Amer. Econ. Rev. 18.
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approach which is useful for identifying the different policy con-
siderations. It has the additional advantage of simplifying the
problem where technical savings are substantial, because in these
circumstances they would invariably exceed the losses resulting
from allocative inefficiency, and hence the latter need not be
considered at all.115
The problem still remains, of course, for the courts to compare
the relative weights of the competing considerations. While any
estimates will of necessity be crude and imprecise, the method
seems justified by the fact that it will yield welfare effects pre-
ferable to those which would result where efficiencies are deemed
to be irrelevant. This contention is particularly applicable to the
Canadian setting where, in addition to the fact that the potential
for saving is exceedingly large, existing inefficiencies can to a great
extent be attributed to definite causes, and hence in specific cases
efficiency-producing integration may be easily identified.
To begin with some well-documented evidence, most cost savings
will and do occur at the plant level, rather than at the firm level.110
In addition, while the average size of the Canadian manufacturing
plant is actually larger than its American counterpart,11 a number
of studies indicate that a primary cause of inefficiency is the lack
of specialization amongst the producing firms.”8 In other words,
although the size of a plant may be large, the number of products
which each produces precludes the generation of substantial scale
economies. As a result, output is not restricted but costs remain high.
It is difficult to say why Canadian industry has failed to ration-
alize in view of the lax enforcement of Combines policy. Certain
authors contend that the comparative smallness of the production
run may be attributed to the control exercised by a few American-
115 While Kaysen and Turner, op. cit., n. 3 have not adopted this methodology,
they agree, at p. 45, that “…in so far as reduction of market power is
incompatible with efficiency and progressiveness, we subordinate the first
goal to the second.” Bork, op. cit., n. 63, at p. 390 seems to agree that the
conflict between power and efficiency should be resolved in favor of a
defendant, ….. since we have no way of proving whether its interference
(i.e. market power) will have the net effect of aiding or injuring consumers.”
Phillips, Canadian Combines Policy – The Matter of Mergers, (1964), 42 Can.
Bar Rev. 78, at p. 96 takes the opposite view, contending that the courts
should be primarily concerned with the question of market power.
110 See Bain, op. cit., n. 2, at p. 114.
117 Economic Council of Canada, op. cit., n. 111, at p. 153.
1181d.; see also Barber, Canadian Tariff Policy, (1955), 21 C.J.E.P.S. 513, at
p. 517.
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owned firms.” 9 Others speculate that tariffs afford the necessary
protection for inefficiency, thereby reducing the initiative to lower
costs. 120 For the purposes of this discussion it is important only to
note that the courts can, and should, take judicial notice of the
more overt efficiency-producing behavior.
In the interests of expediency, a reasonable starting proposition
might entail the per se exclusion of alleged efficiencies resulting
from interfirm integration as a defense to substantial market power,
particularly where the defendant contemplates no alterations at
the plant level itself. Where, however, the substantial reorganization
of productive operations constitutes one of the central features of
the arrangement challenged, the greater potential for cost saving
would render the absence of precise measuring instruments less
important than might otherwise be the case. Judicial notice of
alleged efficiencies would in such cases find its justification in
the greater probability that a proper assessment can be effected.
In addition, the courts would do well to regulate the means
through which integration is actually constituted. By way of example,
industrial
structural inadequacies merely calling for increased
specialization could be remedied through short-term horizontal
agreement rather than merger, in order to preserve whatever po-
tential competition each of the contracting firms might offer at a
subsequent date. The advantages of integration by contract in these
circumstances clearly illuminate the difficulties of applying the
per se rule articulated by the Supreme Court to the Canadian
economy.
The foregoing does not imply that the courts will always be able
to identify efficiencies without difficulty: it merely provides that
they should carefully consider a defense based upon cost savings
consistent with the organizational characteristics of the relevant
industry. The relevant policy conclusion is that complex economic
issues cannot be rendered less difficult by overlooking pertinent
and identifiable facts which reveal the very complexity in question.
An expedient administration of the law is not justified where it
necessarily entails an improper application of the economic theory
which it is designed to reflect.
no See Skeoch, International Aspects of Antitrust, U.S. Senate Subcommittee
on Antitrust and Monopoly of the Committee of the Judiciary, April 29, 1966,
89 Congress, vol. 9, at p. 233.
120 English, Industrial Structure in Canada’s International Competitive Posi-
tion, Montreal: Private Planning Association of Canada, 1964, at p. 40; Barber,
op. cit., n. 118, at pp. 517 and 525.
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b. Social Considerations
The consequences of undue market power are not confined to
the economic arena, for the hardship resulting from an inadequate
production of goods does not distribute itself randomly: since price
is the ultimate regulator, the relatively poorer segment of society
is systematically deprived. Combines policy is not, however, in this
writer’s view, an appropriate instrument to achieve a more equitable
distribution, because the very process of reducing market power
without regard to efficiencies will entail higher costs, and hence
higher prices. Attempts to apply the law with this end in view
must therefore be to some extent self-defeating. A more effective
policy solution compatible with the goals of maximizing society’s
resources lies in a system of transfer payments which would enable
the deprived to secure some of the goods which they require. In
this regard, a recent Royal Commission has criticized the current
tax structure on the grounds that “….
the taxes earmarked for
transfer payments are probably at least proportionate and possibly
regressive, depending on one’s assumptions regarding shifting.” 121
The proper theoretical approach thus seems unclouded, but the
ultimate political solution must necessarily be less so. Unquestion-
ably, it is wrong for the courts to import social values which,
although legitimate in another setting, would have the effect of
rendering the Combines Act incompatible with a truly productive
economy. They would commit a serious error by improperly applying
one public policy in order to counteract government inertia with
respect to another.
c. Political Considerations
In view of the extensive literature already existing it would
be redundant for the writer to engage in a detailed discussion of
the political consequences of undue market power. Nevertheless,
a brief review of some recent studies and an analysis of their impli-
cations seems justified in the light of their relevance to Combines
policy.
The central problem with which most investigators have been
concerned is the discretionary power of the “economic elite” 122
to dispose of the earnings of the corporations which they represent.
121 Report of the Royal Commission on Taxation, Queen’s Printer, Ottawa,
1966, vol. 2, at p. 264.
122 This was a term first coined by Porter in 1956 to depict the 907 executives
of 183 dominant Canadian corporations. See Porter, The Concentration of
Economic Power and The Economic Elite in Canada, (1956), 22 CJ.E.P.S. 199.
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Most writers agree that it is the irresponsible power of a small
group of self-sustaining corporate decision-makers which is to be
attacked, regardless of how the power is actually used,’23 but there
is less unanimity of opinion with regard to the appropriate remedy.
Certain American authorities contend that antitrust policy is the
appropriate medium,’2 4 while others advocate institutional changes
in the internal structure of the corporation itself. 25
Keeping in mind the unrealized potential for efficiencies in
Canadian industry, this writer would adopt the institutional ap-
proach if discretionary power were typically the consequence of
intra-industry market power. Reported studies do not, however,
indicate that such is actually the case. Thus, in 1956, Porter found
that 183 “dominant corporations”
… were responsible for 40 to 50 per cent of the gross value of production
in manufacturing, 63 per cent of the total value of metal production, 90
per cent of railway transportation, 88 per cent of the gross earnings of
telegraph and cable services, 82 per cent of the total revenue of Canadian
air carriers, 83 per cent of telephone revenues, and 60 to 70 per cent of
the hydro electricity produced by privately-owned companies, as well as
a large but undetermined proportion of other industries such as industrial
minerals, fuels, water transportation, and retail distribution. 26
It thus seems clear that the corporate conglomerate is largely re-
sponsible for the unchecked economic and political power which
resides in the 907 persons who hold directorships in these dominant
business entities. Porter’s study also revealed that interlocking
directorships exist between 170 of the major companies. Assuming
that there are many Canadians whose resources for effective cor-
porate leadership have gone untapped, it follows that interlocking
directorships are without economic justification, and hence warrant
123 See by way of example Friedman, “Monopoly and the Social Responsibility
of Business and Labor”, in Mansfield, Monopoly Power and Economic Per-
formance, at p. 105 (1964, 2nd ed.); Lewis, “The Social Responsibility of Big
Business”, in Mansfield, Monopoly Power and Economic Performance, (1st ed.,
1960), at p. 146; Hacker, When Big Business Makes Gifts (Tax Deductible),
New York Times Magazine, Nov. 12, 1967.
124See Kaysen, “The Corporation: How Much Power? What Scope?” in Ma-
son, The Corporation in Modern Society, (1959), at p. 212.
125See Chayes, “The Modern Corporation and the Rule of Law”, in Mason, id.,
at p. 264; Brewster, “The Corporation and Economic Federalism”, in Mason, id.,
at p. 290.
126 Porter, The Vertical Mosaic, (1965), at p. 233. A subsequent study which
Porter cites by Ashley reveals that even greater concentrations of power are
vested in Canadian banks, which number less than 40. See Ashley, Concentra-
tion of Economic Power, (1967), 33 CJ.E.P.S. 105.
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legislative prohibition, at least where they provide formal channels
of communication between very large enterprises.
That aside, contemporary structural changes in Canadian indus-
try justify an economic policy which takes a hard line against
future conglomerate mergers, given the premise that “bigness”, and
the concentrated power that comes with it, is inherently undesirable.
Thus, only five per cent of the consolidations which took place
between 1900 and 1948 were of the conglomerate variety,’27 whereas
“… most of the dramatic economic development of the 1950’s
and early 1960’s was undertaken by the dominant corporations.” 128
The effect of these mergers was to reduce the number of dominant
firms to 163.129
Since the ultimate effect of the further rationalization of Canadian
industry will take the form of increased concentration in an already
highly concentrated economy, a sound economic policy should
prevent further integration unless clearly accompanied by cost
savings. While those conglomerates possessing important horizontal
elements may well involve substantial economies, few efficiencies
will typically be incidental to mergers between totally unrelated
firms, 130 and hence judicial attemps to make accurate assessments
with existing techniques must be correspondingly speculative. Ac-
cordingly, the courts should view such integration with a suspicious
eye, particularly where it involves a firm whose absolute size is
large.
The foregoing is of course predicated upon a reversal of the
Breweries and Sugar decisions, because a “pure” conglomerate
could not, by definition, yield the judicially defined concept of
monopoly –
that is, the virtual elimination of competition. As we
have seen, however, a process of reassessment must necessarily
depend upon greater administrative commitment to the anti-merger
cause, and hence the underlying determinant of ultimate policy
may well, in the last analysis, be political rather than legal 131 or
127 Weldon, “Consolidations in Canadian Industry, 1900-1948”, in Skeoch, Re-
strictive Trade Practices in Canada, (1966), 228, at p. 260.
128 Porter, op. cit., n. 126, at p. 242.
129 Id., at p. 243.
130 See Blair, The Conglomerate Merger in Economics and Law, 46 Geo. L.
672, at p. 679.
131 For a review of the American law with regard to conglomerate mergers,
and an analysis of the anticompetitive consequences which they may have,
see Turner, Conglomerate Mergers and Section 7 of the Clayton Act, (1965),
78 Yale L. Rev. 1313. In Canada as well as in the United States, it is the
lessening of competition which in the last analysis must be present in order
to render a merger unlawful.
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economic. In view of the current prosecutorial inertia in the face
of the highly concentrated economic and political power which
exists in Canada today, and which no doubt will significantly de-
termine future government action, the writer has serious doubts
as to whether the necessary efforts to disseminate that power will
be forthcoming.
Should this pessimism prove to be unjustified, the Restrictive
Trade Practices Commission would assume far more importance
than it has today. In this regard, Canadian administrators could
well profit from the American experience, where overzealous
enforcement agencies coupled with a judiciary generally hostile to
big business has rendered the former both prosecutor and judge,
thereby increasing the danger that extraneous political consider-
ations might contaminate substantive questions of law and economic
policy.132 The Commission should attempt to avert these difficulties
by safeguarding its integrity as an essentially judicial or quasi-
judicial body which impartially arbitrates disputes between the
Director and private litigants. By way of example, judicial dogma
which preaches the sanctity of small business may represent a
“victory” for the Director, but it should have no emotive content
for the Commission which, always maintaining its character as
an independent tribunal, should continuously expose current eco-
nomic theory to judicial examination.
In the last analysis, however, the law is what the courts say
it is, and hence perhaps the clearest lesson which can be drawn
from the American experience is the difficulty which emerges from
rigid thinking which fails to reflect subtle, but important differ-
ences between different circumstances. Someone has to apply the
law, whatever it be, to specific cases, and hence the importance
of extra-legal considerations must vary inversely with the extent
to which the applicable rule conforms to the economic environment.
Thus the courts should proceed slowly, all the while ensuring that
presumptive rules generated in the name of expediency do not
merely have the effect of creating bad law, while simultaneously
shifting the burden of administering that law from one public body
to another.
132 See, in this regard, Cook, Merger Law and Big Business: A Look Ahead,
(1965), 40 N.Y.U.L. Rev. 710, at p. 717.
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Conclusion
The few identifiable threads which run through the fabric of
Canadian Combines law point to an administrative laxity on the
one hand, and a varied judicial response on the other. The pro-
nounced judicial tendency to perceive economic problems in an
exclusively behavioral context has induced the courts to formulate
radically different standards for integration constituted through
merger, and that effected by agreement. Principles properly appli-
cable to overt price-fixing arrangements which typically form the
prosecutorial object have been extended to the more subtle cases
as well, without regard to the underlying policy considerations.
Domestic political considerations no doubt account in part for
government inertia, but it is important not to understate the rele-
vance of competing policies of international trade and tariff protec-
tion, coupled with the limitations flowing from relatively small
markets. In this regard, Canadian policy-makers have chosen to
further the public interest primarily by improving the country’s
international position, assuring full employment and the integrity
of the dollar, and inducing foreign investment in order to secure
goods and services which might otherwise be unavailable. The
protection of the consumer at home through the medium of a
rigorous anti-combines policy has clearly been deemed a policy of
only secondary importance.
These considerations do not, however, account for the unjusti-
fiable mergers which have over the last decade gone without
reproach. A peculiar administrative willingness to accept two lower
court decisions as the binding and.supreme law of the land seems
to this writer at least to be a sign that pressure groups are signifi-
cantly affecting the prosecutorial policies of the enforcement agency
itself.
