Big firms facing big changes in market power law

4 April 2022

Major changes are on the way for New Zealand’s largest firms now that the Commerce Amendment Bill, which will reduce the hurdle to prove a misuse of market power, is only awaiting royal assent.

The current test, which asks whether the firm took advantage of its market power for a prohibited anti-competitive purpose, will be replaced by a so-called effects-based test. Under the new law, firms with substantial market power will be prohibited from engaging in conduct which has the purpose, or has or is likely to have the effect, of substantially lessening competition in that or any other market in which the company supplies or acquires products.

At a practical level, the new law will:

  • remove the need for the Commerce Commission to construct a hypothetical market to assess whether a firm ‘takes advantage’ of its market power, and instead allow it to look at the actual market in which the anti-competitive conduct is alleged,
  • allow the Commission to focus on the actual anti-competitive effects that might arise from conduct, rather than on a firm’s rationale for the conduct, and
  • significantly lower the threshold for enforcement against firms with market power.

Firms with substantial market power will now need to assess the potential competitive effects of their unilateral conduct rather than simply ask whether they have an anti-competitive purpose and/or how a firm without market power would have acted. Conduct likely to face greater scrutiny under the new law includes:

  • refusals to supply or provide access to competitors,
  • aggressive pricing and certain discounting/rebating strategies,
  • exclusive dealing, and
  • tying the supply of one product to the purchase of another.

Notably, the new law will not contain a ‘legitimate business defence’.

Fortunately, businesses will have a 12-month transitional period in which to get their house in order.

Other changes

Other changes in the Bill include:

  • removing some specific exemptions in relation to intellectual property rights,
  • increasing the maximum penalties for anti-competitive business acquisitions and mergers, and
  • a number of other reforms, including changes to the treatment of anti-competitive covenants relating to land.

If you have any questions about the matters raised in this article, or would like our assistance to prepare for or respond to the new changes, please get in touch with the contacts listed or your usual Bell Gully advisor.

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.