NERA Economist Disagrees with Canadian Competition Bureau’s Claim of Coordinated Behavior Based on Provincial Price Differences

The Situation

The Competition Bureau Canada (Bureau) erroneously alleges that it found evidence of anticompetitive behavior among the three nationwide mobile wireless providers: Rogers Communications Inc., BCE Inc. (Bell), and TELUS Communications Inc. Specifically, the Bureau falsely claims that rather than competing, the three providers coordinate their retail prices to keep them artificially high for their mutual benefit. The Bureau has made these claims in several documents, including “Competition Bureau statement regarding Bell’s acquisition of MTS” (a merger the Bureau nevertheless approved), and most recently in several comments in response to Telecom Notice of Consultation CRTC 2019-57 (a review of Canada’s mobile wireless services).

The Bureau bases its allegation principally on its observance of lower prices in Quebec and Saskatchewan relative to the remaining provinces. The Bureau wrongly hypothesizes that the lower prices in Quebec and Saskatchewan are the result of a “strong regional competitor” that supposedly does not participate in the alleged coordinated behavior but undercuts the prices charged by the coordinating parties, thereby stopping the claimed coordinated behavior. The Bureau further mistakenly hypothesizes that prices in the remaining provinces would be as low as they are in Quebec and Saskatchewan if all provinces had a strong regional competitor. Thus, the Bureau’s thesis is that regulation that would help establish a strong regional competitor in each province would lower prices in these provinces.

NERA's Role

TELUS commissioned NERA to respond to the Bureau’s study. NERA showed that it is factually incorrect and methodologically deficient. NERA prepared a rich set of market data and performed an independent competitive assessment study, which it used to find the Bureau’s conclusions to be false.

The Result

NERA’s response to the Bureau’s study presented the following evidence to disprove the claim of coordinated behavior and its ensuing theory that a “strong regional competitor” is necessary to ensure competitive prices.

(1) Pricing patterns indicate that the Bureau’s claim is factually incorrect. The provincial price differences allegedly observed by the Bureau are not persistent. For instance, no differences were found in July 2019. Moreover, the pricing patterns are not consistent with coordinated behavior. These findings collapse the Bureau’s coordinated behavior theory.

(2) The various pricing strategies result from different demand and supply conditions, not from coordinated behavior. The Bureau simply observes different pricing strategies in different regions. This is consistent with a competitive market and is not unique to mobile wireless services. Provincial price differences are common for many other products. Furthermore, provincial price differences for mobile wireless services existed before the entry of the regional providers. Idiosyncratic reasons explain the lower prices in Quebec and Saskatchewan.

(3) A simple observation of price differences across different markets is not proof of coordinated behavior. The Bureau’s hypothesis lacks theoretical support, and its finding omits that communications markets are contestable (e.g., disciplined by smaller providers that can undercut excessive price levels). The Bureau’s theory ignores the presence of other equally situated regional providers, considering them not “strong regional competitors” that are allegedly unable to undercut the prevailing price levels.

(4) The economic literature disagrees with the Bureau’s reasoning. The economic literature is clear that for coordination to be viable, the participants must (a) reach an agreement on the terms of coordination, (b) be able to monitor it, and (c) have credible punishment mechanisms. The Bureau has failed to substantiate any of these conditions.

(5) Prior studies and the observable market outcome disagree with the Bureau’s finding. Prior competition studies have found the Canadian mobile wireless services market highly competitive and home to some of the most advanced networks in the world. These results cannot coexist with the Bureau’s coordinated behavior theory.