Govt approves Commerce Commission 'market studies', baulks on market abuse test reform

Commerce Minister Jacqui Dean. Photo / Marty Melville

The Commerce Commission will get the power to conduct proactive 'market studies' to help it pinpoint emerging competition issues but decisions on long-standing recommendations to reform the market abuse test in the Commerce Act have been kicked out to mid-2018.

Commerce Minister Jacqui Dean announced the government decisions, saying the power to conduct formal market studies would "promote better competition" and follows recommendations from both the competition regulator and the Productivity Commission that first surfaced publicly in 2013.

The Productivity Commission said in 2014 that the application of the so-called 'Section 36' competition test in New Zealand had become "idiosyncratic" and out of sync with practice in Australia.

Australia's federal Parliament is currently debating changes to the misuse of market power provisions in the Competition and Consumer Act, which may explain the reason for delay in New Zealand's decision-making process, a competition law partner at Chapman Tripp, Matt Sumpter, told BusinessDesk.

The Australian change to an 'effects' test rather than the existing 'counter-factual' test for determining abuse of market power could be "troublesome" as it may lead firms to "pull their punches for what constitutes robust competition," Sumpter said.

"The fear, and it may be a legitimate one, that those with substantial market power have is that if you focus on the effect of business conduct, you might mistake aggressive competition.

"If I'm a large aggressive firm and I meet the market on price and in doing so, my less efficient rivals can't keep up, it shouldn't be right that I should stand accused of anti-competitive conduct just because I've won a marketplace tournament.

"That's the concern."

In her statement, Dean said: "While the consultation process has demonstrated that Section 36 does not work perfectly for some types of conduct, it is not yet clear whether an alternative test would benefit competition or consumers. Officials will continue to look into this and will report back in mid-2018 before decisions are made regarding Section 36."

The Commerce Commission first argued in 2013 that its reliance on the so-called 'counter-factual test' for determining whether or not a merger or acquisition could be anti-competitive was outdated - a view backed by a subsequent Productivity Commission inquiry.

That was also the time at which the competition regulator started calling for the ability to conduct market studies, which Dean said would improve the commission's enforcement activity without having to take cases to court and would "allow the government to be proactive, rather than reactive" by ordering market studies "where there are potential issues rather than just waiting for breaches of competition law to occur".

"A market studies power is often used by competition authorities around the world and introducing one here will bring New Zealand into line with similar jurisdictions," Dean said.

Other proposed changes to the Commerce Act will see the repeal of the 'cease-and-desist' regime, in force since 2001, which allows the commission to order a company to stop engaging in activity suspected of being anti-competitive.

A further reform will allow settlements on competition disputes to be registered as enforceable undertaking so that any breaches can be quickly penalised by the courts.