The government is conducting a targeted review of the competition provisions in the Commerce Act, including the misuse of market power prohibition.

Submissions are due with the Ministry of Business, Innovation and Employment (MBIE) by 9 February 2016.

Scope of review

Section 36

The functioning of section 36 relating to the taking advantage of market power to exclude competition.  MBIE’s preliminary view is that it has not been working satisfactorily because it is:

  • failing to punish anti-competitive conduct by powerful firms
  • too complex to allow for cost-effective and timely application, and
  • misaligned with sections 27 and 47 in the Act both of which use an “effects test” rather than section 36’s  “purpose test”, and out of step with foreign jurisdictions (including the EU, the US and Canada)

The prospect of amendments to section 36 will have implications for the commercial and compliance strategies of New Zealand’s most strategically important companies.

Alternative enforcement mechanisms

MBIE considers that:

  • the settlements regime is weak because it is based on contractual arrangements and that it is out of line with recent changes to the Fair Trading Act, and
  • the cease and desist regime is less necessary following changes to the High Court’s Commercial List and the fact that the Commerce Commission no longer needs to make an undertaking as to damages when seeking an interim injunction.  It also notes that it has been used only once in 14 years and that, if it was invoked, it would likely be cost-ineffective and cumbersome.

Market studies  

MBIE observes that the lack of any formal power for the Commerce Commission to conduct market studies (detailed investigations into markets or sectors that have been identified as operating sub-optimally) is “a significant gap in New Zealand’s competition framework” and identifies three interconnected approaches used overseas:

  • diagnosing market problems
  • removing regulatory barriers to competition, and
  • building evidence as a precursor to enforcement.

The Commission has been advocating for a market studies power since at least 2012.  In other jurisdictions, competition authorities have recently carried out intensive market studies in the private healthcare, retail banking, energy and supermarkets sectors. 

Next steps

This review carries with it the possibility for legislative change which could affect substantially a number of New Zealand’s largest corporates.  We suggest you get involved and will be happy to help.  The long lead-time for submissions is welcome, particularly given the disruptions of Christmas.