Competition law on Australian model

By Brian Fallow

WELLINGTON - The Government proposes fundamental changes to competition law to make it less permissive and to tackle the problem of tacit collusion in some industries.

A Ministry of Commerce discussion paper on competition thresholds in the Commerce Act, recommends changes to section 47, the key provision on mergers and acquisitions, and to section 36, which prohibits anti-competitive behaviour.

The changes would bring the sections in line with Australian law.

At present the Commerce Act prohibits mergers and acquisitions if they result in a firm acquiring or strengthening a "dominant position" in a market (unless the public benefits outweigh the detriments).

"This focus on single-firm dominance ignores any potential harm that may result from joint dominance in a market. Consequently it prevents mergers from being scrutinised in terms of whether the resultant market structure will be conducive to collusion, whether explicit or tacit," says the ministry.

In some industries - it cites the petrol industry before the advent of Challenge as an example - parallel price movements amongst "competitors" can have the same effect as would formal (and illegal) collusion.

Rather than tackling such behaviour directly, the ministry proposes changing the provisions on mergers and acquisitions so that potentially oligopolistic industry structures are avoided.

As an example of the limited ability of the current provisions to take into account the potential harm that can result from joint dominance, it cites the Commerce Commission's recent decision to clear TransAlta's proposed (but as it turned out unsuccessful) bid for 40 per cent of Contact Energy. The combined entity would have had about 45 per cent of the retail electricity market.

The ministry considers the courts' interpretations of "dominance" (which guide the commission's decisions) have raised the threshold higher than Parliament originally intended.

It proposes adopting the Australian test, replacing the current prohibition with: "No person shall acquire assets of a business or shares if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market for goods and services."

It also proposes adopting the language of Australia's Trade Practices Act as one method of lowering the threshold for section 36, which prohibits a firm with a dominant position from using its position for the purpose of restricting competition in that market.

The Australian provision refers to firms which have a "substantial degree of market power," which is a lower threshold than dominance.

It retains, however, the concept of "purpose." Some critics of the New Zealand law have sought a provision which looks only to the effects and likely effects of the firm's behaviour.

But the ministry considers that would expand the scope of section 36 too much, catching, for example, plans by a dominant firm to scale up capacity to achieve economies of scale.

The Government wants to make a decision on the competition thresholds by the end of June. The deadline for submissions on its proposals is May 14.