Profits and markups have increased over the last two decades as the state of competition in Canada has deteriorated, an in-depth analysis from the Competition Bureau finds.
The bureau published a report Thursday analyzing how competition evolved across industries between 2000 and 2020, using data from Statistics Canada and an analysis provided by University of Toronto associate professor Matthew Osborne and his team.
The report, which is said to be the first of its kind, looks at a broad range of indicators and concludes that competition intensity has decreased over that period of time.
"Our top-line finding is clear: there has been a concerning decline in competitive intensity across the Canadian economy from 2000 to 2020," said Alexa Gendron-O'Donnell, an associate deputy commissioner, during a media briefing.
The reportfinds that between 2005 and 2018, the most concentrated industries got even more concentrated over time, while more industries came to be considered highly concentrated.
In industries where businesses can take advantage of technology to scale up production and bring down costs, it can be more efficient to have fewer players, hence creating more concentration.
However, the report finds that larger firms became less efficient compared to smaller ones between 2001 and 2018. There was no relationship between concentration increasing and larger firms becoming more efficient.
Meanwhile, large firms are facing fewer challenges from smaller competitors overall, and fewer new companies are finding a foothold.
Entry and exit rates have declined between 2001 and 2022, suggesting industries across the economy have become less dynamic.
The bureau also analyzed profits and markups, and says both have increased over the last two decades.
Between 2002 and 2018, the average markup across industries rose by 6.7 per cent. However, for industries with the highest estimated markups, the average increased by 12.5 per cent.
There was a similar finding when it comes to profits, which rose more in higher-profit industries between 2000 and 2020.
The report comes at a time when competition issues are grabbing the attention of people and policymakers, a phenomenon the Competition Bureau has taken note of as it pushes for a "whole-of-government" approach to tackling Canada's competition woes.
"While we at the bureau have been advocating for the need for more pro-competitive policies for a long time, we have seen that recently the Canadian public and policymakers are beginning to see this area as a priority," said Anthony Durocher, a deputy commissioner at the bureau.
The recent runup in inflation has brought these competition issues into greater focus, as people and politicians question why prices have risen by so much, so quickly.
Research by staff at the Bank of Canada shows price increases have closely mirrored the cost increases businesses have faced, implying that consumers have carried the entire burden of higher prices.
The federal government recently introduced legislation that would make several amendments to the Competition Act, and has pledged an overhaul of the law. However, it remains unclear what the timeline is for full modernization of the law.
Commissioner Matthew Boswell says this latest report from the bureau highlights the need to modernize Canada's competition law and for governments to adopt pro-competitive policies.
"Without the adoption of pro-competitive policies, Canada risks continuing down the road of declining competitive intensity. Taking action to increase competition will drive lower prices and make life more affordable for Canadians," Boswell said in a news release.
This report by The Canadian Press was first published Oct. 19, 2023.
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