How Canada’s Competition Bureau makes products more expensive

Maybe you bought a Kingsdown Romance Collection Sanctuary II Queen Euro-Top mattress from Sears recently. Maybe you think you got it on sale. Should you be losing sleep over it?

Recently Canada’s Competition Bureau initiated legal action against Sears Canada and Hudson’s Bay Co., demanding documentation on pricing, sales volumes and promotional strategies for their mattress businesses. The bureau says it has reason to believe the stores “failed to offer certain sleep sets at the regular price or higher for a substantial period of time [and]…did not sell a substantial volume of some sleep sets at the regular price or higher for a substantial period of time.” Also, it seems those clearance deals went on for a suspiciously long time. The country’s competition watchdog suspects both stores have been holding phony mattress sales.

The Competition Bureau’s investigation is just beginning, so there’s no determination yet as to whether customers were disadvantaged. Then again, a peek under the covers of similar cases suggests the best interests of consumers are wholly irrelevant to Canadian competition law. Rather than protecting shoppers, the Competition Bureau seems more interested in harassing stores that have low prices and interfering in legitimate marketing strategies.

At issue is the use of high-low pricing, also called off-price retailing. Sears, for example, keeps regular prices for mattresses high but uses frequent sales to create customer interest. As the federal court filings point out, competition law requires stores to offer their products at regular prices for a “substantial” period of time before knocking the price down. Substantial is usually interpreted as being at least 50% of the time. If sales are too frequent, it’s assumed consumers will be tricked into thinking they’re getting a bargain when they’re simply paying the de facto regular price. In other words, we’re all too dumb to shop around.

Yet the fact that something is sold at a discount for more than half the time doesn’t sound like a problem most shoppers worry about. Low prices are better than high prices. Anything that keeps them low ought to be considered a good thing, regardless of what the Competition Act says.

In 2005, under very similar circumstances, Sears Canada was found guilty of being too liberal in advertising discounts on car tires and was assessed fines and legal costs of nearly $500,000; in fact, the recent court filings about the mattress business specifically mention the old tire case. But there’s a peculiar lack of evidence that consumers were ever deceived or harmed by Sears’ tire pricing strategy, regardless of the guilty verdict.

At the time Canadian Tire, the dominant tire retailer, was selling its MotoMaster Touring LXR models at the “everyday low price” of $67.99. Sears’ identical Silverguard Ultra IV was regularly priced at $109.99, but was often on sale for $65.99 or $59.99. One of the most damning pieces of evidence against Sears was that it sold too few tires at regular prices—only 1% to 2% of total sales. Since the vast majority of sales were discounted, the judge claimed Sears’ regular prices weren’t “genuine bona fide prices.” But so what?

Rather than being proof of malfeasance by Sears or gullibility on the part of consumers, that the store sold so few tires at a high regular price suggests buyers are perfectly able to spot a good deal. And they’re prepared to shop elsewhere until the price is right. Surely that’s how a proper market ought to function—and without any need for government interference. Arguing that Sears should have sold more tires at a higher price is bizarrely anti-consumer. And it makes no practical difference if it’s called a “sale” or not: $59.99 is always a better deal than $67.99. Nonetheless, the judge declared “consumer harm is not relevant” to competition policy; Sears broke the rules by selling tires at a lower price than its competitor most of the time.

If consumers are still irrelevant to competition policy, we can presumably expect Sears and Hudson’s Bay to be punished for selling mattresses too cheaply as well. Caveat emptor.