Canada’s (In)efficiency Defence: Why Section 96 May Do More Harm Than Good for Economic Efficiency and Innovation

Abstract

Since 1986, Canada’s Competition Act has had an “efficiencies defence” for mergers that seeks to promote economic efficiency at the expense of competition, instead of through competition. This paper questions whether that policy makes sense. We review a large body of literature and case studies demonstrating that competition spurs innovation and efficiency of enormous magnitude. However, these significant beneficial effects of competition are often overlooked because the dynamic process through which they occur is less susceptible to ex ante prediction or quantification. The perverse result, we argue, is that the Competition Act has a bias towards authorizing anticompetitive mergers in the name of economic efficiency even though such mergers are more likely to reduce efficiency overall.