This is a report on the Application for Inquiry that was filed with the Competition Bureau. It outlines the Competition Tribunal's decision process and my response to their judgement.
I received a letter, dated June 13, 2001, informing me that the Inquiry into the Sale of Greeting Cards which began on Sept. 29, 1999 had been discontinued: Letter From the Competition Bureau
No action would be taken to "protect or restore competition" in the Canadian greeting card market.
Unfortunately, a flawed process had yielded a flawed result.
I given no opportunity to address the Tribunal during their investigation. Interviews were held with Hallmark Cards, Carlton Cards (American Greetings) and the major retailers who sign exclusive contracts with them. Conclusions were then drawn without any feedback from the parties, represented by myself, who had initiated the Inquiry.
Had I been invited to participate, I would have responded as follows:
1. To the position that Hallmark and Carlton's vigorous pursuit of marketshare is evidence of a competitive market place.
Under the provisions of the Competition Act to protect Canadian markets from either a monopoly or a duopoly, we Applied for an Inquiry into the effects on the card market of a duopoly. The assertion that Hallmark and Carlton are a duopoly is based on the fact that they control 75% of the card market, over twice the percentage held by any other two companies in any other creative industry. To suggest that competition in our marketplace is healthy because it still exists between the holders of the duopoly in question is definitively illogical.
Further, there is no indication that the Tribunal took any steps to verify or quantify the damage done to the market by the duopoly. Tasks which can be easily accomplished by referring to the UK market, since it is not controlled by the duopoly. It has about twice the per capita sales that we do, and about twice the sales of the US and Australia, where the duopoly also holds sway.
2. To the assumption that exclusive contracts are not reducing competition because the major retailers, whom the Tribunal has no power over, would continue to use one supplier in the absence of such contracts.
I would have pointed out that the Tribunal may 'require of a duopoly whatever is necessary to restore competition in a market'. In this case, the market could have been set on the road to recovery with a directive to the effect that: The members of the greeting card duopoly, whether singly or together, may not supply cards for more than (say) 75% of the available card shelf space of the individual outlets of any major retail chain.
This would have forced the hand of the major retailers, causing them, for the first time in decades, to actually shop the wholesale market for the best available products, as they do for all their other categories. They, quite understandably, may have objected to being made to do so. However, I'm sure that the increased sales which would have accompanied the rebuilding of a more diverse card selection in the market, and their stores, would have won them over to the practise in due course.
Further, the Tribunal, in its role as the protector of competition, would have been in an excellent position to support these new practises by providing the major retailers with compelling independently verified information about the strength of their role in the card market and about the potential benefits to them of a more competitive market. The actions of the major retailers, for whom cards are something of a sideline, suggest that they are unaware that they account for the lions share of card sales. As they go, so the card market will go. If it is to improve and grow, as it can, it is they who will make it do so. And they who will gain the most.
3. To the lack of reference of any kind to the illegal practise of buying suppliers out from under competing distributors.
I would have pointed out the dire consequences of the lack of enforcement of this contravention of The Act. It is extremely difficult to develop original card lines in our constricted market so the ability of distributors to promote proven lines from outside the country is often key to their success and their ability to promote growing Canadian card lines. Typically, the take over of publishers they have spent years building up in Canada is a severe, if not fatal, blow to whatever distributor is involved. And, typically, the distributors involved are among our biggest so the impact on the growth of competition and diversity in the market is very significant.
However, all of this went unsaid, and the Tribunal chose to support the status quo. Thanks to its inaction, in the decade that has followed the duopoly has solidified it's position. It is now harder than ever for competing card lines to get any space in major retail chains. The only two card lines that were making any significant headway in the country, Papyrus and Recycled Paper, have both been bought out by Carlton Cards. Much as Gordon Fraser and Sunrise Greetings were bought out by Hallmark just before the Tribunal met to conduct there Inquiry.
In the most telling move in the history of the industry, Carlton sold off their entire North American retail division in 2009 for a mere 6 million dollars. If there ever was any question that their focus had moved from the retail market to contract wholesaling to the major retailers, that misperception has been laid to rest. A comparable move by Hallmark would, given their structure, be more difficult but we can certain that, with or without a retail divistion, they are equally focused on the wholesale market.
It's clear that the problems brought before the Tribunal persist. If they are to be corrected, it now falls to the major retailers to take the steps needed to do so. The ongoing role of the Canadian card companies is to do what we can to enlist the support of the major retailers to reform and revitalize the card market, while continuing to develop great card lines and alternate markets to sell them in.
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