Vertical Arrangements

Then law governing vertical arrangements is a comparatively undeveloped area in NZ competition law. With only resale price maintenance (RPM) expressly prohibited by the Act, it has fallen to the general prohibitions on anticompetitive arrangements and monopolization to address traditional antitrust mischiefs such as exclusive dealing and tying. The leading case on exclusive dealing was heavily influenced by Chicagoan thinking to the degree that the courts gave the green light to durable distribution arrangements that countenanced foreclosure on a large scale and were plainly anti-competitive. However, the few cases on tying have been more fruitful insofar as remedies have been granted to rectify blatant leveraging by dominant firms into related markets. A period of active enforcement of RPM by the Commerce Commission marked the first decade, but the swathe of prosecutions dried up as the twenty-first century began.

The Goals of Competition Law

The Commerce Act 1986 expressly states its object is to promote “effective or workable competition.” This traditional Harvard School approach has been consistently assailed by big business interests in New Zealand, assisted by a phalanx of “down-under” Chicago School economists and lawyers. Chicagoans have had minor successes in terms of amendments to the principal Act, and some quite notable court victories, but the glittering prize, the overall objective of the Act, has remained unchanged. Chicago won several battles, but lost the war. A major amendment to the Act in 2001, promoted by a Labour government, recast its object to state that its purpose was “to promote competition in markets for the long-term benefit of consumers within New Zealand.” After a quiet period where nothing seemed to have changed, the most recent signs are that a mild preference for consumers is appearing. The chapter also examines the international competitiveness arguments of Michael Porter.

Introduction

This chapter examines four distinctive features that mark competition law in New Zealand (NZ). Some of these (the first and fourth) are unique to NZ while others (the second and third) are common to all antitrust regimes. The first characteristic is the close relationship with Australian competition law and policy. Being modelled upon Australian legislation, NZ law tracks Australian developments, although the pattern is not one of slavish adherence. A second motif is the ongoing tension between competition law as law and competition law as applied to industrial organization economics. NZ courts have consistently held that economics plays an important but supplemental and subsidiary role. The concepts of “competition” and “market” are discussed. Third, there is ambivalence over the ambit of competition law. This chapter examines both exemptions from the Commerce Act 1986 and the extension of competition law to give it a limited extraterritorial effect. Fourth, another recurring theme is the prevalence of the small, isolated economy argument (NZ is a small fish in the global pond) in the development of policy, doctrine, and the interpretation of the law.

Retrospect and Prospect

This chapter looks back upon the modern era and speculates on future developments. As a modern competition statue, the Commerce Act 1986 stands up well in both substance and form and, overall, can be adjudged to be a success. The courts have battled valiantly to determine often complex disputes in a way that is mostly in harmony with the Act’s objective. A respectable body of antitrust jurisprudence has accumulated in just over three decades. Some challenges faced by NZ competition policy designers and enforcement agencies are generic in nature, being issues facing all antitrust jurisdictions. Common challenges include: (a) greater harmonization of competition law internationally and increased co-operation between enforcement authorities; (b) the challenge posed by the digital economy and new technologies; (c) a renewed concern with “fairness” and socio-political considerations, and; (d) inclusion of new factors such as environmental impacts. Other matters are more specific to New Zealand and include: (i) the response to greater Chinese investment and control (Sinicization) of the economy, and; (ii) the possible accommodation of indigenous Maori business enterprises.

Granting Immunity: Authorisation and “Public Benefit”

This chapter analyses the authorisation mechanism—a demanding cost-benefit test for those applicants who seek advance approval of their potentially contravening conduct. The “public benefits” and detriments the Commission can assess under this test are very broad. The potentially relevant matters go well beyond economic efficiencies to intangible and unquantified gains or harms. A thorny issue has been the distributional question. Does the Act have an implicit bias in favour of consumers when it comes to weighing benefits and detriments? Must benefits be passed on to consumers? The Chicagoan thinking came to dominate and the Commission pronounced it was “neutral” regarding wealth transfers from consumers to producers. The 2001 Amendment, which altered the purpose of the Act to clarify that competition operated for the long-term benefit of New Zealand consumers, did not initially alter the Chicagoan stance. Over time, however, the purely neutral stance towards wealth transfers has been eroded. The Court of Appeal decided that private gains, redounding solely to the companies alone, were not sufficient. “Modified total welfare” arrived as a new term in the New Zealand antitrust lexicon. The chapter also analyses the non-neutral stance where the benefits go to foreign owners of local companies.

Horizontal Arrangements: From Price-Fixing and Boycotts to Cartel Conduct

Horizontal anticompetitive arrangements law has been marked by major legislative turning points. The prohibition upon group boycotts was first weakened and then abolished. Having been amended on two occasions (1990 and 2001) to restrict its field of operation, the coup de grace was administered in 2017 when s 29 was repealed outright. More regulation of other horizontal anticompetitive arrangements followed Australia’s lead in the steady stream of cases involving collusive understandings that have the purpose, effect, or likely effect of substantially lessening or hindering competition in terms of the key prohibition in s 27. The task of separating collusion by consensus from “conscious parallelism” has not proved easy. Cases involving joint ventures and information sharing have seldom come before the courts. In 2017 the law was remodelled so that “price-fixing” was re-cast as “cartel” activity. The substance did not change for cartels of the price-setting variety; bid rigging, market division, and output restriction arrangements had also been caught under the original 1986 wording. Very recently, cartel conduct has been criminalized.

The Pre-Modern Period of Competition Law

The precursors to NZ’s modern competition law were the Monopoly Prevention Act 1908 and the Commercial Trusts Act 1910, but a solid body of antitrust doctrine never materialized. The Privy Council did its best (or so it seemed) in a landmark appeal in 1927 to take a contrary view from the New Zealand judges. In future decades reliance was placed upon the cumbersome British bureaucratic-style restrictive trade practices law as a model for our legislation. Yet the paramount reason for the moribund state of competition law was a strong policy preference by successive governments for direct regulation of the economy based on the unstated, but rock-solid, premise of social stability. Large-scale intervention in the economy was the norm. It took a revolution in economic philosophy to occur and that came in 1984 under the Lange Labour government. The Commerce Act 1986 is seen as a key part in the newly deregulated economy. The Act was not a natural, incremental step in the evolutionary process but a leap (saltation) forward into the “modern” era.

Enforcement and Remedies

This chapter examines the range of remedies and the approach to public and private enforcement of the Commerce Act 1986. Over time, the need for private antitrust suits has become even more pressing as the Commission’s workload has expanded greatly. The “light-handed” regulation experiment proved disastrous, and thus the revival of industry-specific regulation was added to the Commission’s duties. The early years were marked by very lenient penalties because judges were sympathetic to businesses falling afoul of the Act. It took the better part of 20 years for tougher deterrent penalties to be realized. The significantly higher penalties introduced in 2001 were the signal for the courts to belatedly give the Act more “bite,” and so it has proved. This chapter also surveys injunctions, damages, and the ill-fated cease and desist orders. After a protracted gestation, the legislature recently introduced the criminalization of cartel conduct.

Powerful Firms and Monopolizing Conduct

New Zealand’s efforts to rein in the anticompetitive conduct of market dominant firms has been disappointing overall. Its track record, in terms of the number of successful challenges, has been dismal. The early cases under the 1986 Act were promising with some notable victories for plaintiffs. But this was not to last. A large part of this chapter details the shadow cast by the Privy Council in the momentous Clear v Telecom saga in the mid-1990s. Their Lordships promulgated a stringent “counterfactual” test for contravening conduct under s 36 (the monopolization prohibition), one that almost spelt the death knell for meaningful enforcement of the section. A major attempt to restore the effectiveness of s 36 and reverse the effect of the London ruling was made by Parliament in 2001, but that proved unavailing. Moreover, the Supreme Court, the replacement for the Privy Council, determined that the counterfactual test ought to be retained. Despite the unabridged severity of the test, a few stubborn victories against monopolizing firms were still recorded. Nonetheless, policymakers have determined that reform is required. One proposal is to revise s 36 to embrace a SLC test. The chapter also considers the dormant intellectual property exemption in s 36. New Zealand’s experience of refusals to deal (“essential faculties” doctrine) and predatory pricing are also analysed.

The Undulating Path of Merger Policy

Merger control has been marked by two major changes to both procedural and substantive law; the mandatory pre-merger notification regime was becoming increasingly burdensome for both businesses and the Commission. In 1990, the pre-merger notification system was abruptly abolished in favour of a voluntary notification system. The so-called “strike down” system already existed in Australia, but the change was probably due less to harmonization and more to some effective lobbying by big business. Regarding the substantive test, the “dominance” standard proved to be highly permissive. Few mergers were halted and the presence of very large market shares post-merger could still be overcome by an unduly generous view of the likelihood of new entry disciplining the merged firm. An idealized version of potential competition (contestability theory) held sway. In 2001, the test in s 47 was changed to the SLC threshold in an effort to toughen up the law. Horizontal mergers, increasing the likelihood of collusion (due to increased market concentration), could now be caught. Yet it is doubtful that the sterner test actually resulted in more mergers being prohibited. This chapter briefly explores the experience of vertical and conglomerate mergers as well as a new section (s 47A) that addresses overseas mergers that have effects upon New Zealand markets.