Vass Bednar is Executive Director of McMaster University’s Master of Public Policy in the Digital Society program and Adjunct Professor of Political Science. Denise Hearn is Principal Investigator at the American Project on Economic Freedoms.
The House of Commons Standing Committee on Industry and Technology is currently conducting a study on the productivity of our small and medium-sized businesses, with a focus on competitiveness and competition law reform.
As Ottawa plans to consult on a modernized law, it must rethink the unfair trading conditions that currently favor dominant companies and commit to fixing a series of loopholes, in both digital and traditional markets, that are hurting consumers and independent businesses.
To do this, policy makers should draw inspiration from current case studies. Consider the United States, where mobile payment service Venmo, owned by PayPal, introduces mandatory arbitration clauses into its consumer contract. This contractual clause requires the parties to resolve their disputes through an arbitration process instead of going to court. Forced arbitration processes have been criticized for being secretive, limiting the plaintiff’s legal rights, and often requiring them to pay large up-front fees to file a claim.
In Venmo’s case, the only way to opt out of binding arbitration is to physically send the company written notice. And if Venmo changes the terms of the agreement in the future, the opt-out does not hold. At this point, customers have one last option: accept our terms or close your account.
While Venmo is only available in the United States, Canadians are also at the mercy of the bank-owned INTERAC e-transfer payment system, which also mandates arbitration to resolve disputes, as many do. large Canadian companies. These take-it-or-leave-it contractual clauses are known as “adhesion contracts” and are increasingly common in the economy.
These terms illustrate how stakeholders, such as consumers, workers and businesses, are increasingly on the wrong side of an asymmetric bargaining position in markets. And while many provinces have used their consumer protection laws to protect consumers from binding arbitration clauses, these protections do not extend to businesses and commercial transactions.
Independent businesses often manage coercive, unfair, or unclear contract terms with dominant buyers on their own, some of which are anti-competitive. These one-sided contract clauses can be used to silence stakeholders (as with non-disclosure or non-disparagement clauses), limit options or legal rights (with waivers of binding arbitration or class action lawsuits) , hinder fair dealings (with exclusive sales agreements), restrict the freedom to set prices (without price competition clauses) and to extract profits or information (with mandatory disclosure of commercially sensitive information) .
But it’s not just about contracts – dominant players now dictate the terms and conditions of trade in so-called “free markets”. As things stand, entrepreneurs have to deal with a series of competition issues imposed by digital gatekeepers that are almost invisible to the consumer.
For example, independent businesses that sell in a marketplace based on a technology platform deal with gatekeepers who continually increase the “tolls” they charge sellers and vendors. Etsy sellers recently went on strike and shut down online stores to protest rising transaction fees. Meta recently announced that it will be taking a 47.5% cut of all digital assets sold on its metaverse platform – an astonishing percentage that will leave far less for artists, developers and creatives. And Amazon now derives most of its revenue from seller fees, which have risen steadily every year, and recently hit sellers with a 5% “fuel and inflation” surcharge.
These tolls act as private taxes on markets, and in the absence of adequate competition law and enforcement, small players have little means to refuse them.
But despite the increased fees, the platforms fail to take responsibility for the challenges that companies constantly complain about, such as copying, counterfeit products and fake reviews. Not to mention platforms like Google and Amazon that self-prefer their own products, making it nearly impossible for small businesses to compete. Platforms are not neutral commercial spaces; they are markets shaped by rules. These rules are now set by private regulators.
And tech platforms aren’t the only ones. Sector after sector, entrepreneurs and business people cannot access markets on fair and equal terms because of the dominant gatekeepers that stand between companies and their customers, or artists and their fans.
If you’re a musician, Live Nation/Ticketmaster’s vertical integration has created a stranglehold on venues and ticket sales. If you’re a grocery supplier, you have to contend with the grocery retail oligopoly of Loblaws, Empire, and Metro, which have imposed “compliance fees” on small businesses for late deliveries independent of their will due to supply chain constraints. If you’re a restaurant owner, the high tolls and manipulative behavior of mainstream delivery platforms like GrubHub, Uber Eats, and DoorDash nearly bankrupted your business during the pandemic. Many business owners are rightly afraid to speak out for fear of retaliation.
While competition policy regulators have mostly stood idly by over the past few decades, the rules of the competitive game have shifted from selling in open markets to monitoring markets. Innovation, business dynamism and start-up rates suffer. This means that companies no longer compete on the basis of producing higher quality goods and services, but rather through the aggregation of market power through endless mergers and acquisitions – which have reached a record level in Canada in 2021.
Even when dominant companies do things that are seemingly beneficial to business, it can still serve their interests. For example, larger companies also regularly participate in entrepreneurial ecosystems and may offer cash grant equivalents of their products and services. While this undoubtedly benefits small businesses, it also locks them into the incumbent’s services and prevents other providers from competing. As one entrepreneur at the Access to Markets initiative put it, “I would love to give away thousands of dollars in free cloud storage credits to startups, but that would bankrupt my business.”
Because of these threats to start-ups in Canada, achieving a vibrant, fair, and resilient economy requires a whole-of-government commitment to clarifying the terms of trade for businesses of all sizes. The government needs to consult directly with small business owners and entrepreneurs to understand the various ways in which their access to markets may be restricted. In addition, the Competition Bureau should conduct market research on adhesion contracts – and the effect of terms such as mandatory arbitration on independent businesses.
Given the complex and changing nature of business transactions, reviewing, updating and expanding Canada’s approach to competition to accurately reflect the needs of small and medium-sized businesses is a necessary step. to reduce transaction costs and improve affordability for Canadian consumers and entrepreneurs.
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