Roger is the complete expert package, bringing both analytical depth and first-rate testimonial skills to the table. Roger Ware, Alwington Economics Inc.
Dr. Roger Ware
Alwington
Economics Inc.

241 Alwington Place
Kingston, ON K7L 4P9
p 613.453.8667
f 613.533.6668
roger@rogerware.ca

 

Canada Pipe (2005)

The Commissioner of Competition sought an order under sections 79 and 77 of the Competition Act against Canada Pipe prohibiting Canada Pipe from engaging in several specified anti-competitive acts and also from engaging in exclusive dealing. Canada Pipe sold cast iron Drain, Waste, and Vent ('DWV') pipe, fittings, and couplings to plumbing distributors and also directly to contractors. DWV systems are made of many materials, and in fact DWV systems made of PVC plastic account for about 80% of all DWV installations. Cast iron accounts for about 10% of DWV installations in Canada.

As Canada Pipe's economic expert I consulted with them extensively prior to the commencement of litigation, and filed a comprehensive economic report with the Competition Tribunal for the hearing which took place in May and June 2004.

The primary target of the Commissioner's application was Bibby's Stocking Distributor Program (SDP), which was a loyalty program that rewards distributors with rebates and multipliers for offering Bibby the “right of first refusal” in supplying their cast iron DWV needs.

Practice of Anti-Competitive Acts

The main anti-competitive act cited by the Commissioner was Bibby's SDP. This program provided distributors of Bibby's products with quarterly and annual rebates, and 'multipliers' (discounts) for loyalty to Bibby. The Commissioner alleged that the SDP locked-in distributors making it costly for them to deal with Bibby's competitors, and thus prevented the entry of new suppliers.

The Tribunal rejected these claims. Unlike the exclusionary practices at issue in Laidlaw and Nielsen, the terms of the SDP are not onerous, and do not “pose a significant legal obstacle to changing suppliers”. The Tribunal also accepted a business justification for the SDP, finding that the high volumes (for Bibby) made possible by the SDP 'allow Bibby to maintain in inventory smaller, less profitable but nevertheless important products'.

Critical Evidence on Switching Costs

The question of whether the SDP was anticompetitive largely turned on an analysis of switching costs. The Tribunal accepted the evidence of Bibby and its expert that the cost to a distributor of switching all of its business to an entrant was negligible, and in fact at the beginning of each calendar year there were no switching costs at all.

The Commissioner's economics expert testified that the SDP also created 'mixing' costs, which discouraged distributors from simultaneously sourcing from Bibby and from entrants. The Tribunal was not convinced. Distributors testified that they had sourced from multiple suppliers and would continue to do so. Mixing costs therefore could not prevent toe-hold entry, as alleged by the Commissioner.

Alternative Distribution Channels

Bibby's economics expert testified that competition in the market had increased since the SDP was introduced in 1998 (the Commissioner's application was brought in 2002). He also explained that while the SDP was offered only to plumbing supply distributors, entrants have access to a variety of alternative distribution channels, all of which were unaffected by the SDP. Manufacturers could sell directly to contractors, they could establish their own distribution facilities, or they could encourage distributors who were not carrying cast iron DWV products to begin doing so. There were many examples of entrants distributing their products through these alternative channels.

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