Wednesday 29 May 2013

It is forbidden except where it is compulsory

It's illegal to run a cartel in most western countries. Government have great big agencies whose whole job is to look out for price-fixing, other forms of collusion, or mergers that do more to promote monopoly than to enhance efficiency. I'm an antitrust skeptic, but I know that isn't a majority position in economics.

Canada is no exception on antitrust vigilance. And, it looks as though things have been getting tighter. Where I'd previously understood Canadian competition law as weighing equally producer and consumer surplus and allowing activities that reduced consumer surplus if they were sufficiently efficiency-augmenting, it looks now like they're putting more weight on effects on competition per se.

Here's one summary of Canadian cartel regulation. Cartels are illegal. Arrangements with competitors to control supply, allocate territories, or fix production, are punishable as an indictable offence with up to a 14 year prison sentence and up to a $25m fine. 

So cartels are pretty illegal.

Except where they are compulsory.

A group of Manitoba fishermen formed a voluntary co-op and tried to sell their fish to a processing plant in Chicago. What happened next? [HT: Mom]
Court was told that the WWM co-op, which represents about 300 fishers in the areas of Duck Bay, Lundar, Ashern and Lake Winnipegosis, had obtained a licence in December 2010 to sell fish to the U.S. independent of the Freshwater Fish Marketing Corp. so long as it wasn’t competing with the monopoly for customers.
The co-op found a customer in Chicago, a fish processing plant, but unknown to the co-op, the processing plant was then re-selling the co-op’s fish to another customer in New York, which happened to be an existing customer of the Freshwater Fish Marketing Corp.
Court was told that the co-op was instructed to stop selling to the Chicago processor but continued to do so and its license was subsequently revoked in June 2011.
The co-op decided to continue selling to the Chicago processor, which resulted in one of its shipments being seized in July 2011.
Stevenson and the co-op were originally charged with three counts of selling without a licence but the other two charges were stayed once they pleaded guilty to the one charge.
They got $2000 fines for trying to break the government-enforced cartel.

Look back at the anti-cartel legislation.
Section 45 - conspiracy
Section 45 provides that:
  • every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges:
    • to fix, maintain, increase or control the price for the supply of the product;
    • to allocate sales, territories, customers or markets for the production or supply of the product; or
    • to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product; and
  • every person who commits an offence under the above-mentioned subsection is guilty of an indictable offence and liable on conviction to imprisonment for a term not exceeding 14 years or to a fine not exceeding C$25 million, or to both.
Section 45 is a criminal offence and, as such, to obtain a conviction, the prosecution has the burden of proof to establish the offence ‘beyond a reasonable doubt’.
So one part of the government throws people in jail for forming cartels while the other part of government fines people for not being in the cartel.

Canada, you're schizophrenic. Seek therapy.


  1. Companies/brands do that here the whole time too, although it mostly flies under the radar. The supermarket duopoly wrestles with big and small suppliers with market share and loss leaders. The big suppliers heavy the SME owners with lower wholesale prices for exclusive access to their retail markets, to the detriment of competitors.

    And when did monopoly and anti-cartel obligations stop the Commerce Commission giving Sky City exclusive rights to non-governmental gambling in NZ (excl. TAB, Lotto)?

  2. The government decided that gambling is a bad, basically, and is trying to restrict the quantity of it that is supplied; awarding a monopoly is consistent with that view, though I do not like the policy.

    Canada's supply-managed industries are something else entirely.