tag:theconversation.com,2011:/us/topics/price-fixing-2576/articlesPrice fixing – The Conversation2023-08-10T20:45:21Ztag:theconversation.com,2011:article/2106032023-08-10T20:45:21Z2023-08-10T20:45:21ZShow me the money: Canada Bread penalty raises questions about criminal fines<figure><img src="https://images.theconversation.com/files/542015/original/file-20230809-24377-hygohw.JPG?ixlib=rb-1.1.0&rect=26%2C4%2C2968%2C1989&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Canadians first learned about a price-fixing scandal that raised the wholesale price of bread in 2017, when Loblaw and George Weston revealed their part in it. A worker restocks shelves at an Atlantic Superstore grocery in Halifax in January 2022.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Kelly Clark</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/show-me-the-money-canada-bread-penalty-raises-questions-about-criminal-fines" width="100%" height="400"></iframe>
<p><a href="https://globalnews.ca/news/9783925/canada-bread-price-fixing-guilty-fine/">Canada Bread Company agreed to pay a $50 million fine</a> on June 21 after <a href="https://www.canlii.org/en/on/onsc/doc/2023/2023onsc3790/2023onsc3790.html?resultIndex=2">pleading guilty to fixing the price of bread sold in grocery stores</a>. </p>
<p>This fine is the <a href="https://www.canada.ca/en/competition-bureau/news/2023/06/canada-bread-sentenced-to-50-million-fine-after-pleading-guilty-to-fixing-wholesale-bread-prices.html">highest ever imposed for a cartel offence in Canada</a> — more than seven times higher than the previous record. </p>
<p>It is also the second-highest fine imposed on a corporation. Only the <a href="https://www.cbc.ca/news/canada/montreal/snc-lavalin-trading-court-libya-charges-1.5400542">$280 million fine SNC-Lavalin agreed to pay</a> as part of a <a href="https://www.canlii.org/en/qc/qccq/doc/2019/2019qccq18961/2019qccq18961.html?autocompleteStr=SNC-Lavalin%20construction&autocompletePos=4">2019 plea deal</a> settling foreign corruption and fraud charges was larger.</p>
<p>Canada Bread’s plea deal is a <a href="https://www.canada.ca/en/competition-bureau/news/2023/06/canada-bread-sentenced-to-50-million-fine-after-pleading-guilty-to-fixing-wholesale-bread-prices.html">significant development in the ongoing investigation by the Competition Bureau</a> into an alleged conspiracy among major grocers and commercial bakeries to fix the prices of bread. </p>
<p>The plea proves the price-fixing scheme did exist — something that could prompt admissions by others suspected of being part of it. </p>
<p>But despite the eye-popping amount, the fine didn’t receive much applause. Instead, many questioned why the $50 million is going to the government and not to those who overpaid for bread. Others wondered <a href="https://www.cbc.ca/news/business/bread-price-fine-paid-to-federal-government-not-consumers-1.6889573">why the money couldn’t be used for something more productive</a>, like food banks or other anti-poverty measures.</p>
<p>These questions challenge some basic principles of sentencing law in Canada. They are worth examining because they raise legitimate questions about why we do things the way we do, and whether we should consider changing.</p>
<h2>A long time coming</h2>
<figure class="align-right ">
<img alt="A hand holding a $25 Loblaw gift card" src="https://images.theconversation.com/files/542019/original/file-20230809-25-rumbdj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/542019/original/file-20230809-25-rumbdj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/542019/original/file-20230809-25-rumbdj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/542019/original/file-20230809-25-rumbdj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/542019/original/file-20230809-25-rumbdj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/542019/original/file-20230809-25-rumbdj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/542019/original/file-20230809-25-rumbdj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Loblaw offered customers $25 gift cards in 2018 to make amends for its part in the bread price-fixing scheme.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS /Richard Buchan</span></span>
</figcaption>
</figure>
<p>Canadians first learned about the bread-fixing scheme in 2017 <a href="https://www.loblaw.ca/en/george-weston-and-loblaw-take-action-to-address-industry-wide-anti-competitive-activity/">when Loblaw and George Weston revealed</a> their part in it. They claimed the scheme ran from 2001 to 2015 and involved major grocery chains and bakeries. </p>
<p>As the first ones to co-operate with investigators, Loblaw was granted immunity from prosecution under the Competition Bureau’s <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/immunity-and-leniency-programs-under-competition-act#sec02">Immunity and Leniency Program</a>. Since cartels are difficult to detect from the outside, immunity is often used to encourage insiders to spill the beans. </p>
<p>Once immunity has been granted, the remaining cartel members are typically motivated to seek leniency by co-operating and pleading guilty in exchange for a reduced penalty. <a href="https://financialpost.com/news/retail-marketing/bread-price-fixing-investigation-is-still-an-open-case-competition-watchdog-says">In this case, however, no one took the bait</a>. </p>
<p>With nothing to back up Loblaw’s claims, the <a href="https://www.cbc.ca/news/business/bread-price-fixing-loblaw-1.6719884">investigation went quiet</a> for six years, until June of this year.</p>
<h2>Why the government, not consumers?</h2>
<p>By default, <a href="https://laws.justice.gc.ca/eng/acts/C-46/page-119.html#h-131365">fines are paid either to the provincial treasurer or the receiver general of Canada</a>, depending on the offence. </p>
<p>Since a fine is a punishment imposed by the state on behalf of citizens, paying fines to general revenues is a simple and fair way of ensuring the funds can benefit everyone without predetermining how the money should be spent. Exceptions are rare and the Canada Bread case did not fit any of them.</p>
<p>While the <a href="https://laws-lois.justice.gc.ca/eng/acts/c-46/page-120.html#h-131542">Criminal Code does allow for restitution in appropriate cases</a>, it’s limited to those that fit the following criteria: it’s easy to determine the dollar amount of harm or loss suffered, the victim can be identified and there is a clear connection between the crime and harm caused.</p>
<p>Restitution isn’t ordered in cartel cases because they don’t meet these benchmarks. </p>
<p>The bread price-fixing cartel illustrates this. Imagine trying to calculate how many consumers overpaid for bread, how much extra they paid for it and how often it happened. Since most people won’t have receipts, the best we can do is a rough estimate. </p>
<p>Trying to use illegal gains as a substitute measure is no better. How do we determine what portion of grocery and bakery profits are linked to overpriced bread?</p>
<p>Given these challenges, aggrieved consumers bring class actions in civil courts that have the expertise to handle complex liability matters. Two class actions are already underway against alleged bread cartel members, <a href="https://www.renvath.com/en/bread-price-fixing-class-action">one in Québec</a> and <a href="https://www.strosbergco.com/class-actions/bread/">one in Ontario</a>.</p>
<p>While class actions can take time, they can increase the chances of a settlement, such as <a href="https://www.cbc.ca/news/canada/montreal/eastern-townships-gas-cartel-settlement-1.4123344">the one reached in 2017</a> on behalf of consumers harmed by the gas price-fixing cartel that operated in eastern Québec in the mid-2000s.</p>
<p>If direct compensation to victims is best left to civil courts, what about using criminal fines to address social problems exacerbated by the crime?</p>
<h2>Can fines be used to fund good works?</h2>
<p>Paying fines to entities other than the government, such as charities, is an example of an alternate measure. They can provide alternatives to traditional fines and imprisonment and can be set up <a href="https://laws-lois.justice.gc.ca/eng/acts/C-46/page-115.html#h-130813">in legislation</a> or be created by courts. </p>
<p>While they tend to be used for specific offender types (youth, those with limited means, and those with mental health or addiction issues) and less serious crimes, alternate measures are also used against corporate offenders in areas like <a href="https://kings-printer.alberta.ca/1266.cfm?page=E12.cfm&leg_type=Acts&isbncln=9780779841660&display=html">environmental protection</a>, <a href="https://laws-lois.justice.gc.ca/eng/acts/f-14/page-12.html#h-1175354">fisheries</a> and <a href="https://kings-printer.alberta.ca/1266.cfm?page=O02P2.cfm&leg_type=Acts&isbncln=9780779843305&display=html">workplace health and safety</a>. </p>
<p>Allowing alternative measures for regulatory offences makes sense because they are designed to promote better compliance and harm prevention. <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3468332">Though not perfect</a>, they are seen as more constructive than simply paying a fine.</p>
<figure class="align-center ">
<img alt="A woman in a hijab and green vest packs food into crates in a warehouse" src="https://images.theconversation.com/files/542022/original/file-20230809-20-c0el9t.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/542022/original/file-20230809-20-c0el9t.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/542022/original/file-20230809-20-c0el9t.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/542022/original/file-20230809-20-c0el9t.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/542022/original/file-20230809-20-c0el9t.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/542022/original/file-20230809-20-c0el9t.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/542022/original/file-20230809-20-c0el9t.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A worker checks expiry dates on bottled and canned products at the Edmonton Food Bank on July 21, 2023. Some people are wondering why the money from Canada Bread’s fine isn’t being used to support food banks or other anti-poverty measures.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jason Franson.</span></span>
</figcaption>
</figure>
<p>Since many regulatory sanctions are remedial, it wasn’t hard for courts to start ordering that fines be used to fund research studies at universities, create new training programs or develop updated industry-wide standards, instead of being paid to the government.</p>
<p>Making orders like these is easier in places where governments have created dedicated funds to support remediation and prevention efforts, like the federal <a href="https://www.canada.ca/en/environment-climate-change/services/environmental-funding/programs/environmental-damages-fund.html">Environmental Damages Fund</a>.</p>
<p>When it comes to serious economic crimes like cartels, fraud and corruption, however, <a href="https://canlii.ca/t/t987">my research shows</a> that creative sanctions have rarely been used. </p>
<p>But the idea of using fines to fix problems made worse by economic crime is catching on, <a href="https://digitalcommons.schulichlaw.dal.ca/dlj/vol43/iss1/11/">such as a proposal to create an international development fund supported by fines from foreign corruption cases</a>. </p>
<p>Courts, prosecutors and defence counsels are also more open to exploring innovative sanctions. A set of creative settlements crafted in recent years to <a href="https://www.canada.ca/en/competition-bureau/news/2023/03/bpr-to-pay-485000-following-seventh-quebec-bid-rigging-settlement.html">resolve bid-rigging cases</a> is particularly relevant here. </p>
<p>In that case, the penalty took into account what the defendants had paid into the Québec <a href="https://www.legisquebec.gouv.qc.ca/en/document/cr/r-2.2.0.0.3,%20r.%201">Voluntary Reimbursement Fund</a> that was created to recover amounts improperly paid by municipalities because of corruption. </p>
<p>These trends suggest that directing fines into a fund to support consumer issues, food banks or similar measures is possible, should the provinces be willing to set them up.</p><img src="https://counter.theconversation.com/content/210603/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jennifer Quaid holds research grants from the Social Sciences and Humanities Research Council of Canada. She is the Chair of the Legal Committee of Transparency International Canada and a Senior Fellow at the Centre for International Govervance Innovation.</span></em></p>Why is the $50 million going to the government and not to those who overpaid for bread? The answer is complicated.Jennifer Quaid, Associate Professor & Vice-Dean Research, Civil Law Section, Faculty of Law, L’Université d’Ottawa/University of OttawaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1784972022-03-17T16:55:15Z2022-03-17T16:55:15ZProvincial competition law needed to address the power of gig work platforms<figure><img src="https://images.theconversation.com/files/452278/original/file-20220315-17-1aeiqvu.jpg?ixlib=rb-1.1.0&rect=0%2C368%2C5414%2C3194&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Gig work is at a greater risk of monopsony than other platforms because of the role platform owners play as regulators and collectors of user data.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>With the invention of gig-based platforms like Uber and SkipTheDishes, the gig economy has not just become an integral part of the labour industry, but also digital society as well. </p>
<p>Along with the meteoric rise in popularity of these platforms, many of these companies have “monopsonies” in their industries. A <a href="https://www.investopedia.com/terms/m/monopsony.asp">monopsony</a> is similar to a <a href="https://www.investopedia.com/terms/m/monopoly.asp">monopoly</a>, except instead of a single <em>seller</em> dominating a supply of goods and services, a single <em>buyer</em> controls the market.</p>
<p>Businesses gain monopsony power in labour markets when workers lack meaningful outside options for employment. <a href="https://equitablegrowth.org/monopsony-market-power-labor-market/#:%7E:text=The%20classic%20example%20of%20a,of%20labor%20in%20the%20town.">When workers have fewer options for where to work</a>, they are forced to take on unstable, exploitative work for less pay to make ends meet.</p>
<p>Currently, government regulators have limited tools to address the market power of these gig-based platforms. Recent discussions on <a href="https://lmic-cimt.ca/what-does-gig-work-mean">gig work</a> in Canada have focused on benefits like <a href="https://www.canada.ca/en/employment-social-development/programs/ei/consultation-better-program-backgrounder.html">reforming Employment Insurance</a> and classification (<a href="https://gigworkersunited.ca/">seeking employee status</a>), but have overlooked anti-competitive behaviour and the role of employer monopsony. </p>
<h2>Gig work especially vulnerable</h2>
<p><a href="https://www.investopedia.com/terms/g/gig-economy.asp">Gig work</a> — especially those housed on digital platforms — are at a greater risk of monopsony than other platforms because platform owners are also the regulators and collectors of user data. For instance, Uber <a href="http://economicstudents.com/2017/03/uber-is-problematic-but-youll-keep-using-it-anyway/">acts like a monopsonist</a> when it purchases all trips from riders before connecting them to drivers. </p>
<p>Some scholars have argued that <a href="https://doi.org/10.1093/jeclap/lpab017">gig work platforms are essentially price-fixing schemes</a> between contract workers, which is yet another manifestation of monopsony power. </p>
<p>Gig platforms’ use of data may also further increase the monopsony power they wield against workers. For instance, <a href="https://doi.org/10.1093/ser/mwab028">carrot-and-stick incentives</a> based on data collected, like <a href="https://www.wired.com/story/how-to-fix-ratings-in-the-gig-economy/">rating systems</a>, <a href="https://www.varicent.com/blog/variable-compensation-and-the-gig-economy">bonuses</a> and the <a href="https://www.zdnet.com/article/ruled-by-algorithms-gig-workers-remain-powerless-against-automated-decision-making/">threat of being punished by management</a>, can coerce workers into taking jobs they may not usually consider.</p>
<figure class="align-center ">
<img alt="A woman moving grocery bags from a shopping cart into the trunk of a car" src="https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=384&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=384&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=384&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=482&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=482&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=482&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Carrot-and-stick incentives, like rating systems and bonuses, can coerce workers into taking jobs they may not usually consider working.</span>
<span class="attribution"><span class="source">(AP Photo/Ben Margot, File)</span></span>
</figcaption>
</figure>
<p>Given that technology trends are enhancing monopsony power through algorithms, regulators must examine the tools that they have to curb this power. They should also empower themselves with new ones built for modern markets, controlled by digital technologies and algorithms. </p>
<p>Our <a href="https://vivicresearch.ca/PDFS/Competition-Data-Driven-Markets-Final-Report-2022.pdf">new working paper</a> co-authored with <a href="https://www.linkedin.com/in/ana-qarri-b25a6858/?originalSubdomain=ca">Ana Qarri</a>, a recent graduate of McGill University’s Faculty of Law, uses labour monopsony power as a case study to explore competition issues in data-driven markets.</p>
<h2>Provincial legislation is needed</h2>
<p>One of our recommendations to better address monopsony power in labour markets is to establish separate provincial competition legislation targeted specifically at employers. </p>
<p>Our analysis found that authorities traditionally focus on addressing the strategies companies use to exert their monopsony power, like <a href="https://www.competitionpolicyinternational.com/no-poach-and-wage-fixing-agreements-in-canada-so-whats-the-issue/">wage-fixing and non-poaching agreements</a>. However, they have done little to address monopsony directly, mainly because <a href="https://laws-lois.justice.gc.ca/eng/acts/C-34/">competition law</a> does not provide many tools for tackling it at its root. </p>
<p>Even in instances where competition law does provide tools for protecting workers, it is likely that the Competition Bureau is not enforcing the law to the full extent. The most notable example is mergers and acquisitions that <a href="https://economics.princeton.edu/working-papers/monopsony-in-the-labor-market-new-empirical-results-and-new-public-policies/">lead to monopsony power in some labour markets</a>.</p>
<figure class="align-right ">
<img alt="A man in a suit standing up and giving a speech" src="https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=705&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=705&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=705&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=886&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=886&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=886&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Canada’s minister of industry, François-Philippe Champagne, recently announced that Canada’s competition law will be examined.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span>
</figcaption>
</figure>
<p>While the Competition Bureau has the power to investigate and even challenge mergers that lead to substantial monopsony power, we found no evidence that it ever has. A provincial authority may be better positioned to address competition issues in labour markets, given that labour law is generally under the purview of the province. </p>
<p>Such an authority could consider <a href="https://accesstomarkets.org/the-latest/potentially-unfair-or-coercive-business-contract-terms/">coercive contract terms</a> that prevent workers and consumers from enforcing their rights under law and other anti-competitive tactics that entrepreneurs and small business owners may face. </p>
<p>Industry Minister François-Philippe Champagne <a href="https://www.canada.ca/en/innovation-science-economic-development/news/2022/02/minister-champagne-maintains-the-competition-acts-merger-notification-threshold-to-support-a-dynamic-fair-and-resilient-economy.html">recently announced</a> that Canada’s competition law will be examined, specifically mentions addressing wage fixing agreements, which is encouraging. </p>
<p>This update could also make it possible for Canada’s competition commissioner to pursue cases against digital platforms on the basis that they are price-fixing conspiracies for contractors operating on platforms, as <a href="https://doi.org/10.1093/jeclap/lpab017">some scholars</a> have proposed. </p>
<h2>Workers need protection</h2>
<p>However, there has been little demonstrated awareness of the role of monopsony power in influencing worker welfare, both in the government and in competition and labour policy circles. The absence of a strong role for the provinces on competition issues may have contributed to the <a href="https://www.cigionline.org/articles/canadas-competition-law-is-it-really-up-to-the-task/">general lack of innovation on the topic</a>.</p>
<p>Still, the province currently has a <a href="https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03886.html">memorandum of understanding</a> with the bureau that promotes co-operation and knowledge exchange. Last year Canada’s labour minister made Ontario the first province to <a href="https://www.thestar.com/business/2021/10/25/ontario-government-bans-noncompete-clauses-freeing-up-workers-to-change-jobs.html">ban non-compete agreements</a>, which restrict workers’ abilities to change jobs freely. </p>
<p>Policy-makers should aim to prevent — and even reduce — monopsony power itself. Readdressing gig workers through the Employment Standards Act will not curb the monopsony power digital firms hold over workers. </p>
<p>While employee reclassification will unlock more benefits and worker rights, such as termination pay, minimum wage, minimum or core benefits, pay stubs and notice of termination, an entirely new legislative approach is needed to curb the profound and growing ability of gig platforms to obtain and exert monopsony power over workers in Canada.</p><img src="https://counter.theconversation.com/content/178497/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vasiliki "Vass" Bednar is affiliated with the Public Policy Forum (Fellow) and the Centre for International Governance Innovation (CIGI) (Senior Fellow).
She has received funding from the Ministry of Innovation, Science and Economic Development and the Ministry of Government and Consumer Services (Ontario) for policy research on competition. She has also received funding from the Ministry of Labour, Training and Skills Development of Ontario as a member Ontario's Workforce Recovery Advisory Committee (2021-2022). </span></em></p><p class="fine-print"><em><span>Robin Shaban is the owner and co-founder of Vivic Research. They have received funding from Unifor and the Canadian Centre for Policy Alternatives for research and educational services related to competition policy. Robin is affiliated with the Canadian Centre for Policy Alternatives. </span></em></p>New legislation could strengthen the social contract between workers and platforms.Vasiliki Bednar, Executive Director, Master of Public Policy in Digital Society Program and Adjunct Professor of Political Science, McMaster UniversityRobin Shaban, PhD Candidate, School of Public Policy and Administration, Carleton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1511932021-02-08T13:37:55Z2021-02-08T13:37:55ZCorporate concentration in the US food system makes food more expensive and less accessible for many Americans<figure><img src="https://images.theconversation.com/files/381811/original/file-20210201-23-sw9ipn.jpg?ixlib=rb-1.1.0&rect=22%2C0%2C2500%2C1654&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Volunteers prepare boxes at the Greater Boston Food Bank on Oct. 1, 2020.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/volunteers-quality-check-and-prepare-boxes-to-load-for-news-photo/1229827185?adppopup=true">Iaritza Menjivar, The Washington Post via Getty Images</a></span></figcaption></figure><p>Agribusiness executives and government policymakers often praise the U.S. food system for producing <a href="https://www.msnbc.com/morning-joe/meat-industry-responds-the-meat-racket-msna270286">abundant and affordable food</a>. In fact, however, food costs are rising, and shoppers in many parts of the U.S. have limited access to fresh, healthy products. </p>
<p>This isn’t just an academic argument. Even before the current pandemic, millions of people in the U.S. went hungry. In 2019 the U.S. Department of Agriculture <a href="https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics/#householdtype">estimated</a> that <a href="https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics/">over 35 million people were “food insecure</a>,” meaning they did not have reliable access to affordable, nutritious food. Now <a href="https://apnews.com/article/race-and-ethnicity-hunger-coronavirus-pandemic-4c7f1705c6d8ef5bac241e6cc8e331bb">food banks</a> are struggling to feed people who have lost jobs and income thanks to COVID-19. </p>
<p>As rural sociologists, we study <a href="https://scholar.google.com/citations?user=V_pXnRUAAAAJ&hl=en">changes in food systems</a> and <a href="https://scholar.google.com/citations?user=X8JjxZEAAAAJ&hl=en">sustainability</a>. We’ve closely followed corporate consolidation of food production, processing and distribution in the U.S. over the past 40 years. In our view, this process is making food less available or affordable for many Americans. </p>
<h2>Fewer, larger companies</h2>
<p>Consolidation has placed key decisions about our nation’s food system in the hands of a few large companies, giving them <a href="http://www.ipes-food.org/_img/upload/files/Concentration_FullReport.pdf">outsized influence</a> to lobby policymakers, direct food and industry research and influence media coverage. These corporations also have enormous power to make decisions about what food is produced how, where and by whom, and who gets to eat it. We’ve tracked this trend <a href="https://www.globalagriculture.org/transformation-of-our-food-systems/book/updates/howard-hendrickson.html">across the globe</a>.</p>
<p>It began in the 1980s with mergers and acquisitions that left a few large firms <a href="https://www.bloomsbury.com/us/concentration-and-power-in-the-food-system-9781472581112/">dominating nearly every step of the food chain</a>. Among the largest are retailer <a href="https://corporate.walmart.com">Walmart</a>, food processor <a href="https://www.nestle.com/aboutus/overview">Nestlé</a> and seed/chemical firm <a href="https://www.bayer.com/en/crop-science/crop-science-division">Bayer</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graphic showing consolidation in the global seed industry" src="https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=503&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=503&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=503&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=633&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=633&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=633&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Between 1996 and 2013 Monsanto acquired more than 70 seed companies, before the firm was itself acquired by competing seed/chemical firm Bayer in 2018.</span>
<span class="attribution"><span class="source">Philip Howard</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Some corporate leaders have abused their power – for example, by allying with their few competitors to fix prices. In 2020 Christopher Lischewski, the former president and CEO of Bumblebee Foods, was convicted of <a href="https://www.nytimes.com/2020/06/16/business/bumble-bee-tuna-price-fixing.html">conspiracy to fix prices of canned tuna</a>. He was sentenced to 40 months in prison and fined US$100,000. </p>
<p>In the same year, chicken processor <a href="https://www.wsj.com/articles/pilgrim-s-pride-reaches-plea-agreement-with-justice-department-on-chicken-price-fixing-allegations-11602649655">Pilgrim’s Pride</a> pleaded guilty to price-fixing charges and was fined $110.5 million. Meatpacking company <a href="https://news.bloomberglaw.com/antitrust/jbs-settlement-of-pork-price-fixing-suit-is-worth-24-5-million">JBS</a> settled a $24.5 million pork price-fixing lawsuit, and farmers won a class action settlement against peanut-shelling companies <a href="https://thecounter.org/price-fixing-peanut-farmers-lawsuit-georgia-antitrust-adm/">Olam and Birdsong</a>. </p>
<p>Industry consolidation is hard to track. Many subsidiary firms often are <a href="https://philhoward.net/2020/09/24/organic-processing-industry-structure-2020/">controlled by one parent corporation</a> and engage in “contract packing,” in which a single processing plant produces identical foods that are then sold under dozens of different brands – including labels that compete directly against each other.</p>
<p>Recalls ordered in response to food-borne disease outbreaks have revealed the broad scope of contracting relationships. Shutdowns at meatpacking plants due to COVID-19 infections among workers have shown how much of the U.S. food supply flows through <a href="https://www.msn.com/en-us/foodanddrink/foodnews/13-us-meat-plants-are-down-25percent-of-pork-and-10percent-of-beef/ar-BB1396Ys">a small number of facilities</a>.</p>
<p>With consolidation, large supermarket chains have closed many <a href="https://doi.org/10.1080/10106049.2010.510583">urban</a> and <a href="https://doi.org/10.1080/15528014.2016.1145006">rural</a> stores. This process has left numerous communities with limited food selections and high prices – especially neighborhoods with many <a href="https://doi.org/10.1016/j.socscimed.2015.08.005">low-income</a>, <a href="https://doi.org/10.2105/AJPH.2014.302113">Black or Latino</a> households.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/Y0dCgGGdSCU?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">In 2006, the Community Grocery Store in the small town of Walsh, Colorado, avoided going out of business by selling stock to residents. The store is still in business in 2021.</span></figcaption>
</figure>
<h2>Widespread hunger</h2>
<p>As unemployment has risen during the pandemic, so has the number of hungry Americans. <a href="https://www.feedingamerica.org/about-us">Feeding America</a>, a nationwide network of food banks, estimates that <a href="https://www.feedingamerica.org/research/coronavirus-hunger-research">up to 50 million people</a> – including 17 million children – may currently be experiencing food insecurity. Nationwide, demand at food banks <a href="https://www.ksat.com/news/local/2020/12/10/unprecedented-need-san-antonio-food-bank-has-seen-30-increase-in-demand-since-onset-of-covid-19-pandemic/">grew by over 48%</a> during the first half of 2020. </p>
<p>Simultaneously, disruptions in food supply chains forced farmers to <a href="https://theconversation.com/why-farmers-are-dumping-milk-down-the-drain-and-letting-produce-rot-in-fields-136567">dump milk down the drain</a>, leave produce rotting in fields and euthanize livestock that could not be processed at slaughterhouses. We <a href="https://farmactionalliance.org/concentrationreport/">estimate</a> that between March and May of 2020, farmers disposed of somewhere between 300,000 and 800,000 hogs and 2 million chickens – more than 30,000 tons of meat. </p>
<p>What role does concentration play in this situation? Research shows that <a href="https://doi.org/10.1093/erae/jby026">retail concentration</a> correlates with <a href="https://doi.org/10.1002/agr.20058">higher prices for consumers</a>. It also shows that when food systems have fewer production and processing sites, <a href="https://doi.org/10.1007/s13412-015-0292-2">disruptions can have major impacts on supply</a>. </p>
<p>Consolidation makes it easier for any industry to maintain high prices. With few players, companies simply match each other’s price increases rather than competing with them. Concentration in the U.S. food system has raised the costs of everything from <a href="https://web.archive.org/web/20200530152228/http:/www.zwickcenter.uconn.edu/documents/issuepapers/ip6.pdf">breakfast cereal</a> and <a href="https://www.ceoafterlife.com/marketing/why-price-fixing-continues/">coffee</a> to <a href="https://www.justice.gov/atr/case-document/file/486606/download">beer</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graphs showing concentration in U.S. food markets" src="https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=828&fit=crop&dpr=1 600w, https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=828&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=828&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1041&fit=crop&dpr=1 754w, https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1041&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1041&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The combined share of sales for the top four firms (CR4) for selected U.S. commodities, food processing/manufacturing and distribution/retail channels.</span>
<span class="attribution"><a class="source" href="https://farmactionalliance.org/wp-content/uploads/2020/11/FFAAConcentrationUS.pdf">Family Farm Action Alliance</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>As the pandemic roiled the nation’s food system through 2020, consumer food costs <a href="https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings.aspx">rose by 3.4%</a>, compared to 0.4% in 2018 and 0.9% in 2019. We expect retail prices to remain high because they are “<a href="https://nationalaglawcenter.org/wp-content/uploads/assets/crs/R41224.pdf">sticky</a>,” with a tendency to increase rapidly but to decline more slowly and only partially.</p>
<p>We also believe there could be further supply disruptions. A few months into the pandemic, meat shelves in some U.S. stores sat empty, while some of the nation’s largest processors were <a href="https://www.warren.senate.gov/oversight/letters/warren-booker-open-investigation-into-meatpackers-manipulation-of-covid-19-crisis-to-raise-prices-and-exploit-workers">exporting record amounts of meat to China</a>. U.S. Sens. Elizabeth Warren, D-Mass., and Cory Booker, D-N.J., cited this imbalance as evidence of the need to crack down on what they called “<a href="https://www.warren.senate.gov/newsroom/press-releases/warren-booker-release-information-from-their-investigation-into-giant-meatpackers-exploiting-workers-and-consumers-during-covid-19">monopolistic practices</a>” by Tyson Foods, Cargill, JBS and Smithfield, which dominate the U.S. meatpacking industry. </p>
<p>Tyson Foods <a href="https://thefeed.blog/2020/07/21/sharing-our-commitment-to-team-member-safety-with-elected-officials-leaders/">responded</a> that a large portion of its exports were “cuts of meat or portions of the animal that are not desired by” Americans. Store shelves are no longer empty for most cuts of meat, but processing plants remain <a href="https://www.marketplace.org/2020/12/29/beef-market-still-feeling-the-effects-of-covid-19/">overbooked</a>, with many scheduling well into 2021.</p>
<h2>Toward a more equitable food system</h2>
<p>In our view, a resilient food system that feeds everyone can be achieved only through a more <a href="http://www.ipes-food.org/_img/upload/files/Concentration_FullReport.pdf">equitable distribution of power</a>. This in turn will require action in areas ranging from contract law and antitrust policy to workers’ rights and economic development. Farmers, workers, elected officials and communities will have to <a href="https://doi.org/10.1007/s10460-020-10092-y">work together</a> to fashion alternatives and change policies.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1354861566777294853"}"></div></p>
<p>The goal should be to produce more locally sourced food with shorter and less-centralized supply chains. Detroit offers an example. Over the past <a href="https://tostadamagazine.com/2018/02/28/history-in-photos-detroits-farm-a-lot-program-set-the-stage-for-urban-gardening-movement/">50 years</a>, food producers there have established <a href="https://visitdetroit.com/urban-farming-detroit/">more than 1,900 urban farms and gardens</a>. A planned <a href="https://detroitpeoplesfoodcoop.com/about-us/">community-owned food co-op</a> will serve the city’s North End, whose residents are predominantly low- and moderate-income and African American. </p>
<p>The federal government can help by <a href="https://www.rma.usda.gov/en/Policy-and-Procedure/Insurance-Plans/Whole-Farm-Revenue-Protection">adapting farm support programs</a> to target farms and businesses that <a href="https://www.ams.usda.gov/services/grants">serve local and regional markets</a>. State and federal incentives can build community- or cooperative-owned farms and processing and distribution businesses. Ventures like these could provide economic development opportunities while <a href="https://planning.baltimorecity.gov/sites/default/files/Baltimore%20City%20Food%20Resilience.pdf">making the food system more resilient</a>. </p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>In our view, the best solutions will come from listening to and working with the people most affected: sustainable farmers, farm and food service workers, entrepreneurs and cooperators – and ultimately, the people whom they feed.</p><img src="https://counter.theconversation.com/content/151193/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Philip H. Howard is a member of the International Panel of Experts on Sustainable Food Systems, and a member of the Rural Sociological Society. He has received funding from the National Science Foundation and the US Department of Agriculture. </span></em></p><p class="fine-print"><em><span>Mary Hendrickson is a member of the Rural Sociological Society, Agriculture Food and Human Values Society, and serves on the North Central Region SARE Administrative Council. She has received funding from USDA's National Institute of Food and Agriculture, USDA's Sustainable Agriculture and Research Program and various foundations. </span></em></p>Food production in the US is heavily concentrated in the hands of a small number of large agribusiness companies. That’s been good for shareholders, but not for consumers.Philip H. Howard, Associate Professor of Community Sustainability, Michigan State UniversityMary Hendrickson, Associate Professor of Rural Sociology, University of Missouri-ColumbiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1006072018-07-29T20:17:56Z2018-07-29T20:17:56ZLessons for Australia in the EU’s algorithmic price war that ripped off consumers<figure><img src="https://images.theconversation.com/files/229567/original/file-20180727-106514-si0b8l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">"Resale price maintenance" is illegal in most countries that have competition law.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/asian-young-woman-hands-holding-credit-613377434?src=DXwJV-36tNyAxiL6xLa9gQ-1-0">Shutterstock</a></span></figcaption></figure><p>The European Commission imposed fines of more than <a href="http://europa.eu/rapid/press-release_IP-18-4601_en.htm">€110 million</a> (AU$170 million) on Asus, Denon & Marantz, Philips and Pioneer this month. These consumer electronics manufacturers had prevented online retailers from selling below the recommended retail price of their products, threatening to block supply if they did so. </p>
<p>This anti-competitive conduct is called “resale price maintenance”. It’s illegal in most countries that have competition law because it effectively rips off consumers.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/explainer-the-good-the-bad-and-the-ugly-of-algorithmic-trading-68477">Explainer: the good, the bad, and the ugly of algorithmic trading</a>
</strong>
</em>
</p>
<hr>
<p>What’s interesting about this case is the central role played by algorithms in the dispute. Manufacturers were using algorithmic price monitoring to figure out when retailers were discounting prices, while the same retailers were using algorithms to increase the competitiveness of their pricing.</p>
<p>So we have suppliers using algorithms (and threats) to increase prices, and retailers using algorithms to reduce prices. And it’s likely that both the retailers and the manufacturers were using the same application programming interface to monitor prices. The key thing is that the sales were all online.</p>
<h2>Pricing algorithms operate via APIs</h2>
<p>The purpose of an application programming interface or API is to provide “hooks” by which one application’s software can call for information from other software. The API means that the application’s software does not need to “look under the hood”. </p>
<p>Instead, a provider gives access to multiple systems that use the API for different applications. This is set out in the diagram below.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/229545/original/file-20180727-106521-rww37h.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229545/original/file-20180727-106521-rww37h.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=515&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229545/original/file-20180727-106521-rww37h.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=515&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229545/original/file-20180727-106521-rww37h.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=515&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229545/original/file-20180727-106521-rww37h.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=647&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229545/original/file-20180727-106521-rww37h.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=647&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229545/original/file-20180727-106521-rww37h.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=647&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Application programming interface.</span>
<span class="attribution"><span class="source">Rob Nicholls</span></span>
</figcaption>
</figure>
<p>Traditionally, APIs have been used to allow one application to interface to another application – typically an operating system. For example, applications can be coded in a variety of programming languages but still operate on the Windows operating system. </p>
<p>This works because Microsoft specifies the API in such a way that multiple different programming language types can use that interface. A more recent approach to APIs is to provide access to large data sets. In many cases these data sets can be “live”.</p>
<p>In the online retail world, selling platform providers such as <a href="https://developer.ebay.com">eBay</a> and <a href="https://developer.amazonservices.com">Amazon Marketplace</a> provide application programming interfaces or APIs for their merchants.</p>
<h2>Algorithms used by the retailers</h2>
<p>In principle, a retailer or merchant could use the API provided by the platform to manage their pricing. </p>
<p>Research at <a href="https://mislove.org/publications/Amazon-WWW.pdf">Northeastern University</a> has shown that merchants on Amazon Marketplace that use algorithmic pricing have greater sales. However, merchants may not have algorithm design as a core skill. This was illustrated when a biology textbook was advertised on Amazon Marketplace for over <a href="https://www.wired.com/2011/04/amazon-flies-24-million/">US$23 million</a>. </p>
<p>As a result, there are a significant number of intermediary firms that offer “repricing” software designed to provide competitive pricing and ensure that their clients’ products are promoted by the platform. </p>
<p>For example, in the case of Amazon Marketplace, it’s important that the product is in the “BuyBox”. Although there are several such intermediaries, the practical effect is that only a very limited number of algorithms are used by many merchants on the most popular platforms. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/heres-how-we-can-protect-ourselves-from-the-hidden-algorithms-that-influence-our-lives-70674">Here's how we can protect ourselves from the hidden algorithms that influence our lives</a>
</strong>
</em>
</p>
<hr>
<p>The purpose of the repricing tools is to create a competitive offering from the merchant. Essentially it also acts as tool to discover rivals’ costs on the basis that the minimum acceptable margin for merchants is likely to be comparable. </p>
<p>The effect of the use of algorithms in a selling space where the products are identical is that the best consumer price is based on the private value of the second most competitive seller.</p>
<p>This results in that pricing that reflects both costs and acceptable margins.</p>
<h2>Algorithms used by the manufacturers</h2>
<p>In this case, the manufacturers were either using the same API as the retailers, or “screen scraping” the platform’s consumer website. Screen scraping is simply gathering data from a web page, rather than using the more efficient API. </p>
<p>Once the manufacturers had identified retailers that were selling below the recommended retail price, they asked them to change that price. If the change was not immediate, then the manufacturers threatened to cease supply.</p>
<p>The European Commission was particularly worried that if retailers followed the direction of the manufacturer, the algorithm-driven discounting would evaporate. This would leave consumers with a “take it or leave” recommended retail price.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/fear-not-shoppers-amazons-australian-geoblock-wont-cramp-your-style-97612">Fear not, shoppers: Amazon's Australian geoblock won't cramp your style</a>
</strong>
</em>
</p>
<hr>
<p>For example, if you wanted to buy a Pioneer AVH-1300NEX car entertainment system on Amazon in the United States, you would find prices ranging from US$276 to US$494.95, including US shipping. The order of the offers from Amazon is “Prime” first. </p>
<p>Most of the Prime offers are at US$279.95. The merchant offering US$276 has algorithmically priced to encourage the buyers to ignore the Prime benefits as well as fulfilment by Amazon. The recommended retail price from Pioneer is US$400. If the resale price maintenance was still going on, you would have no offers lower than US$400.</p>
<h2>What about Australia?</h2>
<p>Resale price maintenance is prohibited in Australia. </p>
<p>The Australian Competition and Consumer Commission or <a href="https://www.accc.gov.au/business/anti-competitive-behaviour/imposing-minimum-resale-prices">ACCC</a> summarises this as: </p>
<blockquote>
<p>A supplier may recommend that resellers charge an appropriate price for particular goods or services but may not stop resellers charging or advertising below that price. </p>
</blockquote>
<p>The <a href="https://www.accc.gov.au/publications/advertising-selling/advertising-and-selling-guide/competition-and-anti-competitive-behaviour/resale-price-maintenance">ACCC</a> also recommends that small businesses complain to the Commission if they receive threats about their pricing.</p>
<p>In a world where the technology is used to enforce regulation in the financial services sector (called RegTech), there is also an opportunity for the ACCC to use algorithmic-based tools detect anti-competitive conduct. </p>
<p>Perhaps the online call should be both “buyer beware” and “wholesaler beware”.</p><img src="https://counter.theconversation.com/content/100607/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rob Nicholls does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Four major consumer electronics manufacturers, including Philips and Pioneer, have been fined $170 million by the European Commission for anti competitive conduct.Rob Nicholls, Senior lecturer in Business Law, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/944682018-04-11T23:04:10Z2018-04-11T23:04:10ZWhy the price-fixing scandal might not be all bad for Loblaws<figure><img src="https://images.theconversation.com/files/214163/original/file-20180410-536-11ebgpe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Loblaws bread price-fixing scandal may have eroded public trust in the company, but will it truly hurt the grocery giant in the long run? Galen G. Weston, executive president and chairman of Loblaw Ltd., is seen in this 2016 photo.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Fred Thornhill</span></span></figcaption></figure><p>The bread price-fixing scandal has garnered Canada’s biggest grocery chain a lot of negative media attention.</p>
<p><a href="https://cdn.dal.ca/content/dam/dalhousie/pdf/management/News/News%20%26%20Events/Food%20Retail%20Sector%20Supplementary%20release%20March%202018.pdf">A recent survey</a> from Dalhousie University suggested that consumer trust in Loblaws has fallen by 10 per cent since the announcement of the bread price-fixing issue.</p>
<p>But will the scandal have a sustained negative impact on Loblaws?</p>
<p>While the company may face civil suits at some point, there is no risk of prosecution under the whistle-blower provisions of Canada’s competition regulations. And so the outstanding question is whether the decline in consumer trust results in significant losses in sales and market share to Loblaws.</p>
<p>Several factors suggest perhaps not. </p>
<h2>All retailers painted with same brush</h2>
<p>It’s clear that consumers are becoming <a href="https://www.forbes.com/sites/forbesagencycouncil/2017/04/11/dealing-with-declining-trust-among-consumers/#14f5add8f880">increasingly distrustful</a> of business generally. They feel in many cases that bad behaviour is the norm, and aren’t surprised when stories like the Loblaws price-fixing emerge.</p>
<p>This is particularly true in this case because Loblaws has claimed (and preliminary findings from the Competition Bureau suggest) that many, but not all, Canadian retailers were involved in the bread scheme. </p>
<p>The Dalhousie study suggested that on average, trust went down for all Canadian retailers following the scandal, although trust in Loblaws declined the most. And so if consumers believe everyone cheats, there’s little motivation to switch stores. Food is a staple. We can’t choose to forego groceries.</p>
<p>It’s worth noting the case of Volkswagen. The <a href="http://www.bbc.com/news/business-34324772">emissions scandal</a> that engulfed the German company in 2015 was a significant challenge. Volkswagen paid huge fines and had to retrofit millions of cars. Despite that, the company has seen unit <a href="http://www.dw.com/en/volkswagen-group-achieves-record-sales-in-2017/a-42177892">sales growth</a> of 3.8 per cent in 2016 and 4.3 per cent in 2017. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=382&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=382&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=382&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=480&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=480&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=480&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Volkswagen cars are lifted inside a delivery tower of the company in Wolfsburg, Germany in March 2017. The CEO of Volkswagen said the United States remains a core market for the company despite its diesel emissions scandal.</span>
<span class="attribution"><span class="source">(AP Photo/Michael Sohn)</span></span>
</figcaption>
</figure>
<p>There were financial challenges, and Volkswagen performed in some markets better than others, but customers aren’t staying away in droves despite the negative media attention and bad corporate behaviour.</p>
<h2>Who is Loblaws anyway?</h2>
<p>Another factor that will likely buffer the Loblaws parent company is that many customers likely shop at Loblaws without knowing it. </p>
<p>Loblaws sells food under many <a href="http://www.loblaw.ca/en.html">different banners</a> including Real Canadian Superstore, Zehrs, Provigo, Fortino’s, No Frills and Shoppers Drug Mart. Many customers likely shop at a favourite store without making an explicit connection to the Loblaws name.</p>
<p>That means even those customers who are inclined to punish Loblaws might not even know they are shopping there.</p>
<h2>Free groceries</h2>
<p>Loblaws has reportedly distributed <a href="http://www.macleans.ca/news/canada/you-can-sign-up-for-the-25-loblaw-gift-card-starting-today-heres-how/">as much as $150 million</a> in gift cards (in $25 increments) as part of the campaign to win back public trust in the wake of the price-fixing revelations. These gift cards need to be spent in Loblaws stores. It will bring customers back into the store and they will likely spend more than the $25 they’re entitled to via the gift cards.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A $25 Loblaws gift card is shown in Oakville, Ont., in March 2018.</span>
<span class="attribution"><span class="source">(THE CANADIAN PRESS/Richard Buchan)</span></span>
</figcaption>
</figure>
<p>There will also be people who have never shopped at a Loblaws store who applied for gift cards. Rival grocery chain Sobeys has said it expects <a href="https://www.theglobeandmail.com/report-on-business/sobeys-parent-empire-beats-profit-expectations-in-third-quarter/article38285355/">to feel an impact</a> from the distribution of the gift cards. </p>
<p>Once again, we would expect customers who may have never set foot in a Loblaws store before to spend more than the gift card. It’s even possible that they’ll enjoy shopping at Loblaws so much that they’ll switch stores after spending the card.</p>
<h2>Short-term pain</h2>
<p>That’s not to say Loblaws won’t feel an impact from the price-fixing scandal. They distributed millions of dollars in gift cards. Some of them will not be redeemed — <a href="https://nypost.com/2014/01/26/unused-gift-cards-total-44b-since-2008-study/">that’s always true of gift cards.</a> </p>
<p>Those that are redeemed will not cost Loblaws the full $150 million as they must be spent in Loblaws stores. That means that, although Loblaws will lose the margin they would have made on the sales, the actual out-of-pocket cost of the card is less than the face value of the card. There also remains the real threat of class-action lawsuits.</p>
<p>In the long run, however, it doesn’t seem likely that Loblaws will suffer significant losses in food market share. The price-fixing announcement came very late in the year, so <a href="http://media.loblaw.ca/English/media-centre/press-releases/press-release-details/2018/Loblaw-Reports-2017-Fourth-Quarter-and-Fiscal-Year-Ended-December-30-2017-Results1/default.aspx">fourth-quarter results</a> will not provide much insight. </p>
<p>It’s worth noting that same-store food sales were up 0.5 per cent over the previous year in the fourth quarter. While third-quarter results showed a 1.5 per cent increase over the previous year, it does not appear that there was a dramatic flight from shopping at Loblaws in the immediate aftermath of the announcement. </p>
<p>Loblaws’ first-quarter 2018 results will be telling. But the market also seems to believe Loblaws will weather the price-fixing storm. Share price did not decline significantly after the announcement, and a late January drop <a href="https://www.ctvnews.ca/business/loblaw-shares-downgraded-to-hold-after-new-generic-drug-deal-reached-1.3781673">was attributed</a> to generic drug-pricing reform and the cost of minimum wage increases.</p>
<p>There are still challenges in the market. Stiff competition in the grocery sector still exists and will increase if and when online sales grow. Other factors will continue to keep Loblaws on its toes, but the price-fixing scandal might not be among them.</p><img src="https://counter.theconversation.com/content/94468/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael von Massow receives funding from the Tim Hortons Sustainable Food Management Fund, the Longo's Retail Research Laboratory and the Ontario Ministry of Agriculture and Food. </span></em></p>Loblaws’ reputation has taken a hit following the bread price-fixing scandal. But will it do prolonged damage to Canada’s biggest grocery chain?Michael von Massow, Associate Professor, Food Economics, University of GuelphLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/867822017-11-12T09:45:11Z2017-11-12T09:45:11ZWhy it’s time competition law was applied to sport in South Africa<figure><img src="https://images.theconversation.com/files/193773/original/file-20171108-27037-195x465.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p>An increasing number of popular sports clubs, like Manchester United and Real Madrid, have their stocks publicly traded in major stock exchanges around the world. This underlines the view that sport is no longer simply a cultural spectacle. It’s also become <a href="https://repository.up.ac.za/bitstream/handle/2263/23738/dissertation.pdf?sequence=1">big business</a>.</p>
<p>This applies to South Africa, where football, rugby and cricket have become big commercial affairs. Because sport isn’t formally recognised as an economic sector in South Africa, figures are hard to come by. But data from the South African Department of Sports and Recreation <a href="http://www.srsa.gov.za/MediaLib/Home/DocumentLibrary/Case%20for%20Sport%20-%20Oct%202009%20(Final).pdf">estimates</a> that in 2009 sporting activity contributed about 2.1% to the country’s GDP – that’s about R41 billion.</p>
<p>It’s beyond doubt that the contribution of sport as a sector to the country’s economy has increased over the past decade. Not only does sport create paid employment within the game, it also supports other economic sectors such as tourism and infrastructure development.</p>
<p>But, like many other sectors of the South African economy, the business of sport is riddled with unfair practices that probably infringe the <a href="http://www.compcom.co.za/wp-content/uploads/2014/09/pocket-act-august-20141.pdf">Competition Act</a>. Until recently, for the most part these had been allowed to go unchecked by competition authorities. </p>
<p>There are signs that this might be changing. Following an investigation, the country’s competition commission has announced it will be <a href="http://www.compcom.co.za/wp-content/uploads/2017/01/FOOTBALL-AGENTS-TO-BE-PROSECUTED-FOR-PRICE-FIXING-002.pdf">prosecuting</a> football agents, their companies and the South African Football Intermediaries Association <a href="https://www.iol.co.za/sport/soccer/psl/competition-commission-target-sa-soccer-agents-for-fixing-prices-11540391">for</a> “fixing prices and other trading conditions”. </p>
<p>The case relates to the practice of agents fixing the price or commission that has to be paid when players and coaches change clubs. This is also the case when players and coaches sign or renew corporate sponsorship deals. </p>
<p>The commission’s case against football agents is significant because it brings sport in line with standard rules of business, and recognises the important role that sport plays in the economy. The case relates specifically to football agents, but the principle it’s trying to assert has relevance and will apply to the actions of agencies in other sporting codes as well. </p>
<p>Applying competition law to sport will promote fairness, professionalism, efficient resource allocation and economic development. The case also brings South Africa in line with other countries and regions in the world. In <a href="http://ec.europa.eu/competition/sectors/sports/overview_en.html">Europe</a>, for example, various sporting activities have already been subjected to the scrutiny of competition law. </p>
<h2>Threats to competition</h2>
<p>There are lots of practices in sport that are viewed as being “normal” but that should in fact be cause for concern because they may undermine the Competition Act. </p>
<p>One example are rules for sports leagues and competitions that benefit, favour or give one club – or a few clubs – an advantage over others. What’s often ignored is that sport clubs in the same league or competition are in effect in competition with each other for what is often a significant amount of prize money. </p>
<p>The competition principle could be infringed if clubs of equal status in the same association or league are deprived of the opportunity to compete – or if they’re placed in a competitive disadvantage – without a justifiable sporting or operational reason. This could amount to an exclusionary act in terms of section 8 of the Competition Act. </p>
<p>Sports clubs are also in competition with each other for corporate sponsorships. Some big clubs enjoy a significant proportion of the market share. This gives them the financial power and prestige to attract players and coaches from other clubs. </p>
<p>This power may be used in ways that amount to an abuse of dominance from a competition law perspective. The most common example of anticompetitive conduct in this context is what is known in sports circles as “taping up”. This is where top - and often wealthy clubs – secretly court players or coaches from other clubs, promising them better deals. It would amount to an abuse of dominance if this was done without first getting the consent of the club to which the player or coach is contracted. </p>
<p>Competition law also supports the view that using one’s financial strength to destabilise rivals, for example by poaching their key staff, may be <a href="http://uir.unisa.ac.za/bitstream/handle/10500/21908/thesis_munyai_ps.pdf?sequence=1">anticompetitive</a>. </p>
<p>Broadcasting, the holy grail of modern sports, may at times also fall foul of the Competition Act. The main areas of concern are the terms and conditions of broadcasting rights. For example, the dominance of a preferred broadcaster – and excluding rivals from the market – could be entrenched when a sports league, competition or association awards a lengthy and generally exclusive broadcasting contract to a dominant player.</p>
<p>Ticketing for sport games could also be another problem area. A dominant ticketing company could be using its power to persuade or force associations or clubs to enter into exclusive ticketing agreements with it. This may raise competition concerns because it excludes rivals, or limits their ability to sell tickets.</p>
<h2>The way forward</h2>
<p>There is wide recognition that sport has transformed itself from a social activity into an economic activity with potential to spur economic development. Stakeholders involved in sport may soon need to realign their rules, policies and practices to ensure compliance with the provisions of South Africa’s Competition Act.</p><img src="https://counter.theconversation.com/content/86782/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phumudzo S. Munyai does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The business of sport in South Africa is coming under the focus of the Competition Commission on concerns that some practices may be uncompetitive.Phumudzo S. Munyai, Senior Lecturer: Competition Law, University of South AfricaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/479082015-09-29T08:40:56Z2015-09-29T08:40:56ZBeer behemoths struggle to fend off craft brew craze<p>Anheuser-Busch InBev, brewer of Budweiser, Stella Artois and more than 200 other brands, is already the largest beer maker in the world, <a href="http://www.stltoday.com/business/local/is-a-b-inbev-brewing-the-next-big-deal/article_781171ab-ac87-5808-b0f8-a2fa67589959.html">controlling</a> more than 20% of global sales. It may soon get a lot bigger: this week it reportedly <a href="http://www.reuters.com/article/2015/09/27/us-sabmiller-m-a-idUSKCN0RR0YY20150927">plans</a> to bid for its closest rival, SABMiller, in a deal that could create a company worth some US$275 billion. </p>
<p>If this transaction were to occur without either party being forced to sell off too many assets to meet the demands of government regulators – not a sure thing – it could create one of the world’s ten largest companies by market value. The resulting “<a href="http://www.stltoday.com/business/local/how-burger-king-public-offering-could-fund-megabrew/article_282d4dd2-7f69-11e1-a65f-0019bb30f31a.html">MegaBrew</a>,” a term coined by Sanford Bernstein analyst Trevor Stirling, would control as much as 30% of total beer sales.</p>
<p>The planned acquisition continues a <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2268705">dramatic trend</a> of fewer and larger brewers dominating the beer industry. Back in 2000, there were 22 major beer makers. A series of mergers, takeovers, joint ventures and majority purchases whittled that down to just four in 2012. These four giants, which also include Heineken and Carlsberg, are all headquartered in Western Europe and currently account for <a href="http://www.beerinsights.com">more than three-quarters</a> of US beer sales. </p>
<p>And soon that could be just three giants. </p>
<p>So what’s driving this intense consolidation in the beer industry? How are these behemoths handling the rapid rise of craft brewing? And what does it all mean for consumers? </p>
<p>The answers to these questions, as I’ve learned over my 17 years exploring food system trends – particularly industry consolidation – and their impact on sustainability, can be as complex as a hoppy IPA.</p>
<h2>The battle for growth</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=764&fit=crop&dpr=1 600w, https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=764&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=764&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=960&fit=crop&dpr=1 754w, https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=960&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=960&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The chart shows the industry’s steady consolidation.</span>
<span class="attribution"><span class="source">Phil Howard</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>AB InBev, which has been <a href="http://adage.com/article/news/a-sabmiller-ab-inbev-merger-u-s/230264/">rumored</a> to be hunting SABMiller for years, is expected to offer $106 billion to buy the maker of Peroni and Grolsch. It would <a href="http://www.reuters.com/article/2015/09/27/us-sabmiller-m-a-idUSKCN0RR0YY20150927">combine</a> AB InBev’s strength in Latin America with SABMiller’s in Africa, where it controls 90% of the market. </p>
<p>Heineken rejected a bid from SABMiller one year ago, a combination that had the potential to stave off acquisition attempts from AB InBev, at least for the near future.</p>
<p>Although all four of the top companies are extremely profitable, they are experiencing <a href="http://www.antitrustinstitute.org/sites/default/files/Global%20Beer%20Road%20to%20Monopoly_0.pdf">flat or declining sales in many of their largest national markets</a>. That has left acquisitions – both of each other and smaller regional breweries – as one of the few options available to continue the rapid rates of growth demanded by their shareholders. </p>
<p>Their other main options for increasing profits include cutting costs and raising prices. And that’s where we get to consolidation’s negative impact on consumers.</p>
<h2>Price fixing and signaling</h2>
<p>In recent years, the prices for beer have <a href="http://blog.wblakegray.com/2013/02/is-budweisercorona-merger-really-bad.html">increased much faster than those for wine and spirits</a>, coinciding with the <a href="http://www.amazon.com/Concentration-Power-Food-System-Contemporary/dp/1472581113">greater market power</a> of the big four brewers. </p>
<p>In Europe, price fixing has often been to blame, while in the US the tactics have been more subtle, though the the result has been the same. </p>
<p>In 2007, for example, Heineken, Grolsch and Bavaria <a href="http://www.nbcnews.com/id/18176660/ns/business-world_business/t/eu-fines-brewers-m-price-fixing-probe/#.VgliK7ThsQ4">were accused</a> of holding secret meetings in the 1990s to divvy up markets and fix prices in the Netherlands, leading to $370 million in fines by European Union regulators. </p>
<p>In the US, no such meetings were even needed. In a classic example of “price signaling,” AB InBev, which <a href="http://www.ab-inbev.com/content/dam/universaltemplate/abinbev/pdf/investors/annual-and-hy-reports/2014/AB_InBev_AR14_EN_full.pdf">controls</a> about half the beer market, would regularly lift its prices, and SABMiller and other brewers <a href="http://www.justice.gov/opa/pr/justice-department-files-antitrust-lawsuit-challenging-anheuser-busch-inbev-s-proposed">quickly matched those increases</a>. </p>
<p>This behavior got the attention of officials at the Department of Justice, which took the rare action of blocking AB InBev’s bid in 2013 to take full control of Mexican brewer Modelo, maker of Corona and Pacifico. A <a href="http://www.bloomberg.com/news/articles/2013-04-19/ab-inbev-u-s-file-agreement-in-court-on-modelo-acquisition">deal later emerged</a> that allowed the acquisition to go through, but Modelo’s business interests in the US had to be sold to a rival company to prevent AB InBev, which <a href="http://www.ab-inbev.com/content/dam/universaltemplate/abinbev/pdf/investors/annual-and-hy-reports/2014/AB_InBev_AR14_EN_full.pdf">reported</a> $47 billion in sales last year, from having even more market power to control prices. </p>
<p><a href="http://www.ft.com/cms/s/0/17eb2264-6066-11e5-a28b-50226830d644.html">Most analysts</a> expect that if the AB InBev-SABMiller deal goes through, regulators in the US and possibly China will require similar selloffs to dilute the combined company’s market dominance. SABMiller controls about a quarter of the US market. </p>
<p>Regardless, the economic power of AB InBev will increase substantially on a global level.</p>
<p>One example of this increased power is the ability to dominate shelf space at retailers. Many retail chains give either AB InBev or SABMiller <a href="http://www.washingtonpost.com/business/beer-merger-would-worsen-existing-duopoly-by-ab-inbev-sabmiller/2013/02/01/efa78ce8-6b1c-11e2-af53-7b2b2a7510a8_story.html">direct control over the placement of all the beer they sell</a>, including competitors’ products. This gives them to power to place their own brands in the most visible locations, and allot them the most space. </p>
<p>This strategy is aided by offering numerous slightly different versions of the same product, such as the dizzying number of varieties of Bud Light that fill the refrigerator cases. The acquisition could leave AB InBev as the only “category captain” left. And that means your impulse choices would be strongly steered toward this firm. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Craft brewing has exploded in recent years.</span>
<span class="attribution"><span class="source">Craft beer via www.shutterstock.com</span></span>
</figcaption>
</figure>
<h2>The counter-trend of craft brewing</h2>
<p>While the big brewers consolidate, a countervailing trend is happening on the other end of the spectrum and shaking up the beer industry. </p>
<p>Although overall beer sales are leveling off in most industrialized countries, double-digit growth has occurred in the craft segment in recent years. To be <a href="https://www.brewersassociation.org/statistics/craft-brewer-defined/">considered craft</a>, annual production must be six million barrels or fewer, less than a quarter can be controlled by a non-craft brewer and most of its beer must derive from traditional and innovative flavors and ingredients. </p>
<p>US sales of craft brews <a href="https://www.brewersassociation.org/statistics/national-beer-sales-production-data/">surged 22%</a> in 2014, compared with about 1% for the overall market, according to the Brewers Association. As a result, craft beer’s market share doubled to 19% last year from 9% just <a href="http://www.bevindustry.com/articles/85377-craft-brewing-2011-volume-sales-grew-13-percent-">three years earlier</a>. </p>
<p>This means that as ownership has concentrated at one end of the supermarket beer aisle, it has diversified at the other end. Although the prices of craft brews tend to be higher, the number of options for beer drinkers has never been greater. At the end of 2014, there were 3,418 <a href="https://www.brewersassociation.org/statistics/number-of-breweries">craft brewing companies</a>, up 42% since 2012. </p>
<h2>The big brewers respond</h2>
<p>Big brewers have responded to the fast growth of craft with two strategies. The first is their conventional tack of acquiring selected craft brewers to offset the <a href="http://money.cnn.com/2015/07/30/investing/budweiser-bud-light-sales-anheuser-busch-inbev/">falling interest</a> in their own top brands, such as Budweiser. The other involves imitating their smaller rivals’ consumer-winning styles with “crafty” beers that <a href="https://www.msu.edu/%7Ehowardp/beer.html">hide their corporate parentage</a>. </p>
<p>Just this month, for example, AB InBev <a href="http://www.latimes.com/food/dailydish/la-dd-golden-road-brewing-buyout-20150925-story.html">purchased</a> Los Angeles-area brewer Golden Road (news you won’t find on the company’s website), and SABMiller <a href="http://247wallst.com/consumer-products/2015/09/10/millercoors-expands-craft-beer-effort-buying-into-saint-archer-brewing/">acquired</a> a majority interest in San Diego-based Saint Archer Brewing Company. </p>
<p>AB InBev has also created less mainstream brands that include Shock Top, Landshark and Wild Blue, while SABMiller developed Blue Moon, Batch 19 and Third Shift. Even the firm Blue Ribbon Intermediate Holdings, which has a “<a href="http://www.mycentraljersey.com/story/life/food/2015/07/21/draft-picks/30387635/">virtual monopoly on American heritage brands</a>,” such as Pabst, Schlitz, Stroh’s, Old Milwaukee and Heileman’s Old Style, outsources most of the brewing to SABMiller. </p>
<h2>An unstoppable trend?</h2>
<p>AB InBev and SABMiller have found some success with these strategies, but they have so far <a href="http://www.motherjones.com/tom-philpott/2014/07/craft-beer-revival">failed to compensate</a> for declining sales of their more mainstream brands. </p>
<p>The growth in craft and independent brews – and their multitude of distinct flavors and styles – shows no signs of slowing down. Each year, for example, the <a href="http://www.greatamericanbeerfestival.com/brewers/beer-styles/">Great American Beer Festival</a> adds to the number of styles that are judged in its competition – currently 92 plus a number of subcategories. </p>
<p>This trend, toward local and independent and away from mass-produced products, is a challenge the dominant players are facing in other industries as well, such as fast food, groceries and soft drinks. Although these huge companies are unlikely to disappear in the near future, the challenge of continuing to satisfy investors as well as consumers has encouraged defensive strategies that could be viewed as either bold or desperate.</p>
<p>Acquisitions are a temporary means of maintaining growth rates, but the success of smaller firms suggests that the bigger “MegaBrew” gets, the harder it may fall in the future.</p><img src="https://counter.theconversation.com/content/47908/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phil Howard receives funding from the National Science Foundation and the U.S. Department of Agriculture. He is president of the Agriculture, Food and Human Values Society, and is a member of the International Panel of Experts on Sustainable Food Systems. </span></em></p>AB InBev’s expected bid for SABMiller continues a trend of industry consolidation at the top, but the strong growth in craft brewing is challenging that strategy.Philip H. Howard, Associate Professor of Community Sustainability, Michigan State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/475972015-09-25T04:31:04Z2015-09-25T04:31:04ZWhy South Africa’s tough new competition law is proving hard to implement<figure><img src="https://images.theconversation.com/files/95225/original/image-20150917-7534-175vfwx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Amendments to South Africa's competition law provides more scrutiny of pricing practices in oligopolistic markets. </span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Changes to South Africa’s competition law have widened the scope for the country’s antitrust bodies to punish anti-competitive behaviour. But implementing the changes, which were passed into law five years ago, is proving to be fraught. </p>
<p>The <a href="http://www.saflii.org/za/legis/num_act/caa2009229.pdf">Competition Amendment Act</a> gives the Competition Commission powers to investigate complex monopoly conduct in a market. Under certain conditions, it allows the Competition Tribunal, which adjudicates competition issues referred to it by the Competition Commission, to prohibit such behaviour. Complex monopoly is where firms tacitly act as if they are a single firm in setting prices in the market. </p>
<p>The provision that gives these powers, Section 10A, has not yet been enforced more than five years since the amendments were promulgated. It is one of a number of amendments that have not come into operation. It is not clear what is causing the delay. One possible explanation is that government is aware that some of the sections may be unconstitutional. It may be trying to avoid unintended consequences or difficulties in the operation and credibility of the amendments.</p>
<h2>Extending liability</h2>
<p>If Section 10A comes into effect it will mark a significant change in the country’s competition law. It extends the liability for prohibited anti-competitive practices by firms beyond an agreement or concerted practice to include tacit coordination in certain concentrated market structures and circumstances. </p>
<p>One consequence of this would be increased scrutiny of pricing practices in oligopolistic markets. These are markets where only a few firms compete. The banking sector in South Africa is one example. </p>
<p>It is well-known that oligopolists are <a href="http://www.jstor.org/stable/1825536?seq=1#page_scan_tab_contents">‘interdependent’</a> in their pricing decisions. The prices they charge are based partly on their competitors’ anticipated responses. </p>
<p>Recognition of their common interest often leads to less vigorous price competition and prices that are elevated substantially above competitive levels. Examples of these kinds of pricing practices are: </p>
<ul>
<li><p>price leadership, where a firm sets the price and its competitors follow; </p></li>
<li><p>meeting competition clauses, such as matching competitors’ prices; </p></li>
<li><p>most favoured customer clauses in contracts; </p></li>
<li><p>uniform delivered pricing policies; and </p></li>
<li><p>facilitating practices, such as exchanges of price information and price signalling.</p></li>
</ul>
<h2>Collusion taken to a whole new level</h2>
<p>Another pricing policy that will be affected by the amendment is the use of <a href="http://link.springer.com/article/10.1007/BF01079211">focal points</a> to set and adjust prices. A focal point price is a coordinated price set by two or more sellers, without communication, that can generate excessive profit way above cost and risk consideration. </p>
<p>The price coordination arises from a convergence of expectations or mutual understanding of what the appropriate market price should be and it is chosen for its salience, prominence or uniqueness in the market. </p>
<p>Examples of focal point prices are price ceilings such as credit card and loan interest rates or fees charged at maximum rates set by legislation or regulation. </p>
<p>Another example is price floors such as minimum wages. Or the conversion of South African banks’ prime overdraft rate fixed at 3,5 percentage points above the South African Reserve Bank’s repo rate. </p>
<p>If this amendment comes into effect, it will bring South African legislation closer to the economic approach of punishing collusive conduct advocated by antitrust scholars such as <a href="http://www.press.uchicago.edu/ucp/books/book/chicago/A/bo3628468.html">Richard Posner</a> and <a href="http://www.law.harvard.edu/faculty/kaplow/pdfs/atj_77_2.pdf">Louis Kaplow</a>. According to this approach, liability is determined by its effects or market outcomes, whether explicit or tacit, rather than being based on proof of the existence of an agreement. </p>
<p><a href="http://www.amazon.com/The-Theory-Monopolistic-Competition-Re-orientation/dp/0674881257">Economists</a> argue that the decision by a rational, profit-seeking firm to coordinate its activities with its competitors, whether expressly or tacitly, is essentially the same. The firm decides by balancing the benefits from colluding against the costs, including the risk of punishment by competition authorities.</p>
<h2>The scope is too wide</h2>
<p>The widening of the scope of collusive practices to include <a href="https://stats.oecd.org/glossary/detail.asp?ID=3172">‘conscious parallel conduct’</a> is therefore soundly based on economic theory and may act as a deterrent to firms charging excessive prices in highly concentrated markets. But implementing section 10Aa would trigger a number of problems and difficulties.</p>
<p>The broad scope of the Commission’s investigative mandate under the amendment is almost equivalent to a market inquiry. The difference is that the investigation is directed against the conduct of specific firms, rather than a market as a whole. If the Commission succeeded in establishing complex monopoly conduct, the firms involved could be held accountable for this conduct.</p>
<p>The overly broad scope of the provision means that it is likely to catch conduct that in reality is not harmful to economic welfare, the so-called false negatives. This is particularly the case when it comes to focal point pricing. </p>
<p>Focal point prices in many market circumstances can result in prices being set at elevated levels in comparison with prices that are independently determined by firms. As such, these are likely to be under scrutiny when the amendment comes into effect.</p>
<p>The amendment also provides scope for the Tribunal to impose structural remedies. The Tribunal is empowered to address this conduct by making an order that deals with the effect of the complex monopoly conduct on the market. Should it impose behavioural remedies to reduce prices, it would be acting as a price regulator. This is a function it is ill-suited to perform.</p>
<p>Consequently, if section 10A comes into effect, it may raise more concerns than it is likely to solve. The concerns include uncertainty and potentially harmful economic effects in oligopolistic industries, such as the banking industry. </p>
<p><em>This article is based on a <a href="http://www.sajems.org/index.php/sajems/article/view/803">paper</a> “Focal point pricing: A challenge to the successful implementation of Section 10a (introduced by the Competition Amendment Act)” by the authors and Jessica Staples, an Attorney of the High Court of South Africa.</em></p><img src="https://counter.theconversation.com/content/47597/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mike Holland receives funding from GIBS. He works for GIBS and consults to/owns shares in PriceMetrics (Pty.) Ltd. </span></em></p><p class="fine-print"><em><span>Jannie Rossouw does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>South Africa’s tightening up of its competition law enables it to punish collusive conduct by firms, but there are major obstacles to implementing the changes.Mike Holland, Director of Research at PriceMetrics and Lecturer at the Gordon Institute of Business Science, University of PretoriaJannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/58262012-03-16T04:53:26Z2012-03-16T04:53:26ZAre lowest airfares really guaranteed? Travel industry practices under scrutiny in Flight Centre case<figure><img src="https://images.theconversation.com/files/8641/original/fjpj9jx4-1331785312.jpg?ixlib=rb-1.1.0&rect=29%2C18%2C907%2C953&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Flight Centre versus the ACCC: commonplace travel industry practices are under the spotlight.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Australia’s biggest travel agency chain Flight Centre has been accused by the Australian Competition and Consumer Commission (ACCC) of illegal price fixing for attempting to collude with Singapore Airlines, Malaysia Airlines and Emirates. </p>
<p>The lawsuit filed in the Federal Court alleges that on six occasions between 2004 and 2009, Flight Centre tried to persuade the airlines to withdraw their internet-based discounted seats, which undercut the prices offered by the agency network. Flight Centre’s decision to fight the case, rather than settle, means that long established and commonplace travel industry practices are in the spotlight and of public interest.</p>
<p>Though the court may take years to determine any wrongdoing, it is timely to reflect on the travel industry’s inter-firm relationships and their appropriateness in an online and fast changing business environment. Are consumers really getting the best deals, or is the “Lowest Airfare Guarantee” boast of Australia’s most powerful travel retailer only possible because the cheapest POSSIBLE consumer prices have already been ruled out by an insistence on taking their cut?</p>
<h2>A brewing brawl</h2>
<p>The case raises challenging issues about the appropriateness of the price related dealings which occur between travel “principals” (for instance, airlines and hotels) and their “agents” (for example, retailers such as Flight Centre). In the battle for consumer hearts and minds and an atmosphere of freewheeling assertions about the “consumer interest”, a public brawl is likely to draw in different parts of the industry with unpredictable and risky consequences. </p>
<p>For consumers, travel businesses are generally “good guys” working hard to deliver the best possible fares (“Lowest Airfare Guarantee” and “Unbeatable”), unlike banks, which are widely viewed as profiteers. In a public spat involving airlines and a travel agency chain when questions are being asked about whether prices really are “unbeatable” or are artificially high, the “good guys” label will be harder to sustain.</p>
<p>Debates about the most effective system for distributing air tickets have occurred ever since mass international tourism boomed in the post-war period. In this context a key question behind the ACCC price fixing dispute is whether “direct selling” of tickets by principals should be a prominent feature of the travel industry landscape, or whether using an agent is the norm. Agencies such as Flight Centre undoubtedly provide important value-adding services to consumers by packaging the various components of travel (for instance, accommodation, flights and attractions). </p>
<h2>Online inducements</h2>
<p>And it is a successful business with a loyal and high-yielding customer base - in 2011, its profit was $249 million. But in the world of social networking where customers may prefer to go online to purchase a simple point-to-point airfare, should airlines be prevented from offering potential customers an inducement (say a cheaper price that includes no agent commission plus bonus frequent flier points)? Hotels commonly urge their repeat customers to make a direct online booking next time in return for a discount. Expressed simplistically, the principal is saying to the customer, “by cutting out the middleman, I’ll share the saving with you”. </p>
<p>Direct selling by airlines to customers has been surprisingly rare in Australia, with most relying on third parties such as Flight Centre and resisting the temptation to make savings by undercutting.</p>
<p>However the industry dynamics are changing. A combination of rising aviation fuel costs, increased seat capacity (like the A380 superjumbos) and a proliferation of new entrants (from China and the Middle East) have squeezed airline profits and made direct selling online a tempting way to exercise greater control over distribution.</p>
<h2>Stagnating inbound tourism </h2>
<p>And unlike retailers such Flight Centre which have been positioned to capitalise on Australia’s outbound travel boom, airlines have been exposed to stagnating inbound tourism with recessionary conditions in many source markets. Though Flight Centre is undoubtedly a major Australian employer and generator of income, it is the airlines which have been working harder to support inbound tourism. </p>
<p>It may be argued that airlines should routinely be capable of offering cheaper seats than those available through third parties, particularly when delivered online and to repeat customers. Did Flight Centre attempt to influence its airline suppliers because it needs to support a costly distribution infrastructure (“bricks & mortar”) that is only relevant to some airline customers? Is maintaining this infrastructure in the consumer interest if the system and network of relationships which support it has the effect of retarding the availability of cheap seats supplied direct by the airlines? </p>
<p>Again the court will need to assess the evidence, but in the interim the question will be asked, if I go direct to my airline, will that provide me with the best available price? And if not what is preventing this from occurring?</p>
<p>Whether the court finds for or against Flight Centre is yet to be determined. However the fact that the ACCC case has been launched against an organisation which, however successful, represents an older-style high street style of retailing means that it will be closely studied by all travel industry principals including airlines and also by Flight Centre’s competitors such as Wotif and Webjet which have put all their faith in the online approach to distribution. </p>
<p>Flight Centre’s success has kept the beacon of the high street travel agent alive. An unfavourable court decision could signal high tide for old-style travel distribution and for the “bricks and mortar” retailer.</p><img src="https://counter.theconversation.com/content/5826/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian King is a non-executive director with Destination Melbourne</span></em></p>Australia’s biggest travel agency chain Flight Centre has been accused by the Australian Competition and Consumer Commission (ACCC) of illegal price fixing for attempting to collude with Singapore Airlines…Brian King, Professor of Tourism, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.