In March 2001, the Canadian Competition Tribunal deliv- ered a significant decision to the Commissioner of Competition and Canadian Waste Services Holdings Inc. (CWS). The decision followed an application to (and eventually a hearing before) the Tribunal as a result of the CWS purchase of certain assets and shares of Browning-Ferris Industries Limited (BFI) in Canada.
As part of the merger, CWS acquired the Ridge Landfill located in Blenheim, Ontario. The acquisition was, however, subject to the significant condition that the landfill would continue to be operated by BFI until the commissioner’s application to the Tribunal was dealt with.
The decision provides an indication that the waste management industry in Canada is highly regulated.
The Commissioner of Competition enforces the Competition Act, which aims to “maintain and encourage competition in Canada” and to provide consumers with competitive prices and product choices. Where the Commissioner believes that a merger or proposed merger may prevent or lessen competition substantially, he or she may make an application to the Tribunal.
Subject to several conditions, the Tribunal may order that the assets (or in this case the landfill) be sold by the company. In order to determine whether or not there is likely to be a substantial prevention and lessening of competition, the Tribunal must determine which product is of concern and the dimension of the geographic region; in this case, the disposal of solid non-hazardous waste and the “area of Southern Ontario” containing disposal sites capable of accepting ICI waste from the Greater Toronto Area (GTA).
While “market power” is a term that gets bandied about quite commonly, it has a particular meaning in competition cases. Generally, market power is the ability of a firm or group of firms to maintain prices above the competitive level. Market power may also be exercised by offering poorer service, lower quality products, or by restricting choice. In this instance, market power is one of the factors that the Tribunal had to consider to assess whether or not there was (or is likely to be) a prevention or lessening of competition.
The Tribunal considers a number of factors: barriers to entry into the marketplace, the potential removal of a vigorous and effective competitor in the industry, the presence of foreign competition, and the remaining competition in any given area.
A number of findings were detrimental to CWS’s position. The Tribunal found that the Ridge provides vigorous and effective competition for ICI waste disposal in Southwestern Ontario. It also found that the waste export market would not be a good substitute for the Ridge as a competitive influence.
These findings were especially important when combined with the finding that disposal options for independent transfer stations in the GTA would be limited to CWS itself and three other landfills in Southwestern Ontario. Consequently, it was the opinion of the Tribunal that other landfills in the area would not be able to constrain any exercise of market powered by CWS if it were to continue to own the Ridge.
The Tribunal also examined the current and potential future market share of the ICI Waste market from the GTA. Based on the expert opinion provided for the Commission, the Tribunal concluded that at the end of 2002 CWS will control 63.6 per cent of the total excess capacity if it does not control the Ridge, and 85.8 per cent if it does. It should be noted that for the Chatham-Kent area (which the Tribunal dealt with separately) the figure was 100 per cent controlled by CWS if it retained the Ridge.
Among other things, the Tribunal found that the acquisition would prevent the Ridge (with its 22 per cent share of capacity for ICI Waste) from providing competition for ICI waste from the GTA within Southern Ontario. Moreover, the Tribunal believed that an independent Ridge has and would provide competition against other landfills, which could have a downward influence on tipping fees.
The Tribunal concluded that the acquisition of Ridge would put CWS in a position where it could exercise market power and substantially prevent competition. As such, the acquisition will not be able to move forward in the way that had been contemplated by CWS.
Unless an appeal is successful, the impact could be continued downward pressure on ICI tipping fees in Southern Ontario. However, the actual impact will only be known when it is ascertained who (assuming it is not CWS) will eventually own the Ridge landfill. Until that time, it will be impossible to completely assess the impact of this decision on prices in the sector.