Speak to our experts
Contents
The Commerce (Promoting Competition and Other Matters) Amendment Bill has been reported back from Select Committee with some meaningful improvements recommended, but with significant concerns remaining.
In particular, the prohibition on predatory pricing has been retained despite arguments, from us and others, that it may have the consumer-negative effect of discouraging strongly competitive price strategies.
We comment in detail on the Select Committee’s key recommendations, from the perspective of Chapman Tripp’s submission.
Key improvements
Pro-competition regulation study power removed
We submitted that a new power for the Commerce Commission to carry out market studies to recommend pro-competition regulation would draw the Commission further into a policy role. We noted the Commission can already recommend industry-specific regulation following a market study (and has done so in the fuel and grocery market studies).
The Select Committee accepted this argument and is now instead recommending that the Commission be expressly allowed, in its existing competition reports, to recommend pro-competition regulation and reforms.
Substantial lessening of competition (SLC) test change confined to mergers
We argued that the provision in the Bill to extend the SLC test to "creating, strengthening, or entrenching a substantial degree of power in the market" was unnecessary, risked overreach, and could cause significant uncertainty.
But we also submitted that unintended consequences would arise if the change were to apply across the entire Commerce Act, including to the conduct prohibitions in Part 2. We considered this risked signalling that large suppliers are not permitted to compete even to the extent necessary to maintain their market share.
The Select Committee agreed that applying the change across the Commerce Act may create uncertainty about legitimate competitive responses and has limited the amendment to the merger regime.
Section 46 retained
This provides that mergers that receive Commission clearance are not exposed to challenge under Part 2 (e.g. the prohibition on cartel provisions). The Bill had proposed to remove it, but the Committee has accepted arguments that Section 46 provides an important safeguard so has recommended that it be retained.
Behavioural undertakings
We supported the introduction of behavioural undertakings as a positive change that would allow efficiency-enhancing mergers to proceed without detriment to competition. The Committee is proposing that the threshold for acceptance be lowered so that the Commission need only be satisfied that a structural undertaking would cause “costs out of all proportion to those effects” or is otherwise not reasonably practicable.
Missed opportunities
Predatory pricing provision retained
The predatory pricing provision in section 36C of the Bill has been accepted by the Committee substantially as introduced. Pricing below Average Variable Cost (AVC) or Average Avoidable Cost (AAC) for a sustained period will be deemed to have the purpose or effect of substantially lessening competition, with no requirement to establish actual competition harm. For pricing above AVC/AAC but below Long-run Average Incremental Cost (LRAIC) or Average Total Cost (ATC), an "exclusionary purpose" must be shown.
We argued that per se treatment should be reserved for conduct that can never be pro-competitive (i.e., cartel conduct), whereas low pricing is presumptively pro-competitive and only in very narrow circumstances anti-competitive. These concerns remain unaddressed.
A better solution in our view would be to define predatory pricing as below:
- the AVC or AAC as presumptively unlawful, rebuttable by showing the pricing does not have the purpose of substantially lessening competition, and
- the LRAIC and ATC as unlawful only if it has the purpose or likely effect of substantially lessening competition.
That proposal has not been adopted.
Confidentiality period reduced from 10 to five years
We submitted that a 10-year confidentiality regime would reduce the Commission's accountability, could prevent parties from testing the evidence against them, and could produce decisions based on information that is not subject to sufficient scrutiny.
The Select Committee has halved the confidentiality periods to five years after the conclusion of the Commission's related investigation or inquiry. While this is an improvement, it does not address our fundamental concerns.
Retention of SLC change
While the change to the SLC has been confined to Part 3, the substantive amendment remains. This is despite the fact that the SLC test already includes the enhancement or preservation of market power relative to the counterfactual.
We remain concerned that the amendment implies some intended change in the law, which the courts will attempt to give effect to, without clarity as to what that change is.
Creeping acquisitions provision more targeted
We opposed the change to target creeping acquisitions on the basis that the Commission already has the ability to assess prior transactions and that it carried significant risks of unintended consequences, including the potential to create a statutory presumption against “roll-ups” and to invite adverse inferences about transactions that fall outside the three-year lookback period.
The Committee has narrowed the lookback to prior acquisitions involving the same, substitutable, or otherwise competitive goods or services, but the core of our concern remains.
Call-in powers retained
We argued against giving the Commission power to suspend an acquisition for up to 40 working days on the grounds that it represents a significant shift from New Zealand's voluntary merger control regime. However, the Committee was clearly unpersuaded as the provision remains.
Performance injunctions retained
We were similarly unsuccessful in arguing against the Commission being given the ability to apply to the High Court to order corrective action. On the contrary, the Committee has (a) extended this ability to private individuals and (b) introduced a new statutory basis on which an injunction specifically may be granted.
Class exemption powers retained
We opposed the introduction of class exemption powers on the basis that the more fundamental problem with New Zealand's collaboration regime is the breadth of the cartel prohibition itself.
We proposed narrowing the scope of the prohibition so that parties could engage in some types of arrangements without needing to assess whether they fall within an exemption. Instead, the Committee has confined itself to some procedural amendments (and extended them to the merger regime).
Our thanks to Brooke Kinajil-Moran for her assistance preparing this update.
