Price Gap Legislation: Surprisingly Modest

On December 9, 2014, the Minister of Industry announced changes to the Competition Act that would authorize the Commissioner of Competition (the Commissioner) to determine why products have selling prices in Canada that are higher than they are in the United States.

Under the proposed legislation, the Commissioner will be:

• authorized to obtain court orders requiring companies and individuals to produce documents and other information relevant to an inquiry; and
• required to issue a report outlining findings within a year of obtaining this information.

According to some media reports, the Commissioner intends to start an inquiry immediately after the legislation enters into force.

The amendments represent an apparent shift from the government’s initial proposal to introduce legislation to "prohibit unjustified cross-border price discrimination." Price differentials would not be prohibited under the new legislation, merely subject to investigation and publicity through the Commissioner’s report.

An outright prohibition on cross-border price discrimination would have been unworkable and fraught with challenges for many reasons. The freedom of retailers to determine the prices charged for their products is a fundamental market mechanism in any open economy. Regulation could have led to significant government intervention in the economy. The practical challenges of implementing an effective scheme for the regulation of cross-border price discrepancies would have been considerable.  

However, the Commissioner will still face challenges under the proposed legislation. The reasons for international differentials in pricing can be complex and unclear: as the Standing Senate Committee on National Finance and other observers have pointed out, considerations can include import tariffs, operating costs, product safety standards and competitive conditions in local markets. Fluctuations in exchange rates and other conditions of sale can also account for differences and make "apples to apples" comparisons difficult. The complexity of these issues means that meaningful reviews will be time-consuming and expensive, and conclusions may be ambiguous or out-dated by the time they are made public in the Commissioner’s report.

Despite the challenges the Commissioner will face in meaningfully implementing the legislation, to most observers, it should be viewed as welcome compared to alternatives which could have had the potential to take us back to an era of price controls.

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