Government price-fixing schemes costing consumers a bundle
Canadian shoppers have long suffered from higher prices on some consumer goods relative to other countries. For many Canadians, the price differences are most noticeable when they shop in the United States.
In an attempt to “remedy” the differences, the federal government has just introduced legislation, the so-called “Price Transparency Act.” It will force retailers to explain why Canadian prices are sometimes higher than American ones for the same products.
Industry Minister James Moore, who announced the proposed law, used over-the-top language from historic civil rights struggles to describe the occasional U.S.-Canada price gap. He calls differences between U.S. and Canadian retail prices “geographic price discrimination.” Moore admits other factors lead to higher Canadian prices – what he calls “legitimate costs of doing business” in Canada. But he claims the entire gap between U.S. and Canadian price tags cannot be explained by “legitimate” input costs.
The Act, if it becomes law, will allow the government-appointed Commissioner of Competition to force retailers to disclose “evidence,” which might “expose discriminatory pricing practices.”
Step back for a moment and consider the legislative absurdity. What counts as “legitimate pricing?” How many twisted investigations will this Act produce?
Suppose a retailer’s margin on Widget X is 10 per cent in the United States and 12 per cent in Canada. Any number of factors could explain the difference.
For example, perhaps the middleman, between the wholesaler and the retailer, is subject to higher property taxes in one Canadian city vis-a-vis a competitor south of the border.
To think a government is remotely capable of collecting and properly collating this type of comparative information assumes a degree of specific knowledge that governments do not possess. Why? Because millions of business decisions are made daily and are impossible to track.
All of this, however, ignores one significant reason why some prices in Canada are higher than those in the United States: government policy.
For example, as economist Ross McKitrick found recently, for large industrial users, electricity rates in Chicago in 2012 were 6.12 cents per kilowatt hour. Rates in Toronto were about double that figure. Much of Ontario’s rising electricity rates are due to ill-advised and expensive government-mandated feed-in tariffs for wind power and other expensive types of power. That matters to manufacturers in the GTA when they face American competitors, and has an obvious effect on prices.
Or consider dairy and poultry products. Former Liberal MP Martha Hall Findlay estimates that Canadian consumers pay one and a half to three times more for milk, cheese, and other dairy and poultry products than they should because of federal “supply management” policy.
Supply management, which Americans do not face, restricts the supply of milk, cheese, eggs, chickens and the like, by limiting domestic production. Imports of these products are also discouraged with tariffs that range from 202 per cent (skim milk) to 298 per cent (butter). Findlay estimates the average family pays $200 more than they should, annually.
Maybe that doesn’t matter to some, but as economist Chris Sarlo has noted, wealthier households spend between 5 and 10 per cent of their income every year on food; low-income households spend almost one quarter of their income on groceries. So $1,000 in extra food costs over five years means a lot to poorer Canadian families. And government policy is to blame.
One last example: airline fares. Prices are kept high in Canada by a lack of competition, thanks to federal government policy that prevents full cabotage. Cabotage is where foreign airlines can pick up and drop off passengers in the same country. Where it exists (Europe), increased competition and lower prices result from heightened price competition, something the European Union has repeatedly noted.
The United States and Canada do not allow for full competition, but Americans benefit from a bigger market given their much larger population. Thus, a continental market in airline travel would serve passengers if an American airliner could compete head-to-head with Canadian airlines on our domestic routes. But the federal government, by policy, won’t allow it. The result: higher airline fares in Canada.
Electricity prices in Ontario. Dairy and poultry products. Airline fares. In each case, governments keep costs high for Canadian consumers. It’s a safe bet that politicians will not be called before the Commissioner of Competition to explain their price-fixing schemes.
By Mark Milke
Mark Milke is a Senior Fellow at the Fraser Institute and author of Canada’s Food Cartels Versus Consumers.