Consumers are best served by firms when the latter are exposed to the threat of competition. Absent the possibility of new firms threatening their incumbent status, established players have less incentive to cut costs and prices and improve services. The threat of entry by competitors disciplines firms in ways that serve consumer welfare but there are many barriers to competition in Canada resulting from government interference and these barriers affect a sizable share of the Canadian economy.
What constitutes barriers to competition? There are some barriers that arise from the features of the goods produced or from external factors (for example, geography, distance, or technological limitations). However, there are many more barriers that are the results of government interference. The federal government limits foreign investments in crucial sectors such as air transportation, telecommunications, and broadcasting. In telecommunications, all firms with more than a 10% market share cannot have more than 20% of the voting shares owned by non-Canadians. Similar rules apply to broadcasters and air carriers. In sectors like air transportation, there are additional prohibitions such as that preventing non-Canadian carriers from providing services between Canadian airports.
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