True North Strong and Oligopolistic

Competition among businesses is vital to the advancement and prosperity of a country’s economy as it forces players to innovate, offer affordable pricing, and increase product and service quality. In turn, nations that fail to generate healthy competition risk becoming stagnant. 

Despite ranking 12th out of 140 countries in overall competitiveness, 55 per cent of the Business Council of Canada believe that the country’s competitive environment is concerning. At the root of these worries is the presence of strict government regulations.  

Canada’s current policies create significant barriers to entry for new businesses, resulting in a lack of competition in many of the country’s largest industries, including aviation, banking, and telecommunications. The competitive environment in these industries discourages innovation and increases the cost of living across Canada. 

Bureaucratic Hoops and Hurdles 

High tax rates, excessive bureaucracy, and lagging reforms are to blame for Canada’s tamed competitive dynamics. The adverse effects of these regulatory factors are evident when investigating the nation’s startling foreign direct investments (FDI), extensive start-up policies, and heavy trade barriers. 

Compared to its peers, Canada was named the most restrictive country regarding FDI. Foreign investments are beneficial as they create competition within industries, introduce innovative technologies, and increase capital availability. Without sufficient FDI, businesses will experience slower growth, negatively affecting the Canadian economy. 

In addition, Canada has less-than-ideal policies for entrepreneurs, making it difficult for new competitors to be successful. Currently, it takes 249 days to receive a warehouse permit in Canada, earning the country spot number 63rd in the world for ease of obtaining a building licence.  

Beyond construction, Canada lacks sufficient regulations for strong players in its most prominent industries. Since 1998, the concentration of power has increased by 50 per cent in approximately one-third of Canadian industries. Consequently, a small number of players in these industries control prices and product and service offerings, increasing obstacles for new entrants. 

Canada also has much greater trade barriers than other Organisation for Economic Co-operation and Development (OECD) member countries, as seen through its ineffective trade facilitation and varying treatment of foreign suppliers. High trade barriers increase prices and reduce innovation as domestic businesses face minimal competition from international firms. 

These factors display the difficult nature of doing business in Canada. One symptom of the country’s strict regulatory environment is the absence of intense competition in some of its largest industries.  

Competition and Basic Economic Theory 

But what’s so bad about a lack of competition? When companies face little pressure from external players, innovation decreases and prices rise.  

Since many Canadian industries have high barriers to entry because of strict government policies, companies rarely need to innovate to stay competitive. The costs associated with innovation, such as research and development, reinforce this behaviour and encourage companies to “rest on their laurels.” 

As well, competition among businesses impacts consumers’ wallets. When an industry does not have sufficient competition, players have no incentive to reduce prices in an attempt to gain market share. As a result, these companies can charge higher prices without the threat of losing sales.  

The airline, banking, and telecommunication industries' current competitive environments clearly depict these economic concepts. Although the three industries are relatively successful, the sheer lack of competitors is truly concerning for Canadian policymakers.  

Planes, Loans, and Mobile Phones 

The Canadian airline industry is a duopoly with two main players: Air Canada and WestJet. The strength held by these companies—created through high barriers to entry due to outdated government policies—significantly increases obstacles for new entrants.  

Specifically, WestJet and Air Canada have historically engaged in predatory pricing until new companies cannot survive any longer. Canada also heavily restricts the activities of foreign airlines within the country, leading to a substantial decrease in domestic competition.  

As a result of lagging policies, Canada has some of the highest flight prices in the world, ranking 70th in terms of affordable air travel in 2016. In comparison, the U.S. ranked 30th. Unfortunately, a lack of urgency from government officials makes any reforms to adjust airline regulations less than likely.  

The country’s banking industry also has a concerning competitive environment, operating as an oligopoly with five prominent companies: the Royal Bank of Canada, the Bank of Montreal, the Canadian Imperial Bank of Commerce, the Bank of Nova Scotia, and the Toronto Dominion Bank. Together, these banks are incredibly powerful; as of January 2022, they collectively hold assets valued at $6.6 trillion. A lack of competition among banks harms industry innovation, including the creation of open banking.  

Open banking technology allows consumers to make payments and perform other financial activities through a third-party platform. As fintech companies make great strides towards developing such technologies, they are often outmatched by the power and strength of large banks also looking to enter the market. 

Similarly, Bell, Rogers, and TELUS dominate the Canadian telecommunications industry. Significant barriers to entry—including strict government regulations, costly activities to launch services, and fierce competition among existing competitors—make it difficult for new players to enter the market. This is bad news for Canadians as consumer prices and profits experienced by these companies are the highest among global telecom providers. 

Recently, the Rogers-Shaw merger raised concerns over competition in the industry. If approved, some experts believe that the merger will increase consumer prices. Canada’s Competition Bureau Chief, Matthew Boswell, stated that the Canadian government must evaluate Canada's takeover laws, arguing that a merger should not be allowed if it harms Canadian consumers. 

Canada Has a Competition Problem, and Consumers Bare the Consequences 

Companies in Canada’s duopolistic and oligopolistic industries continue to grow stronger, signalling the need for intense government reforms. As seen in the aviation, banking, and telecommunications industries, outdated regulations harm Canadian consumers and entrepreneurs as they have an overwhelmingly negative impact on innovation and living costs.  

Future policies must prioritize competition by improving the flow of FDI, enabling nationwide entrepreneurship, and decreasing barriers to entry in Canadian industries. Doing so will require significant action from the country’s policymakers and Competition Bureau; however, officials should not back down. After all, as explained by economist Adam Smith, “competition is the regulator of economic activity.”