Prohibition on misuse of market power to be transformed

The Government has announced its decision to amend the law prohibiting misuse of substantial market power. The intention is for the changes to be introduced early in 2021, as Parliamentary scheduling allows – and clearly assuming the current Government retains power in September.

The proposed changes will transform the prohibition on misuse of market power in the Commerce Act 1986. The current section has long been regarded as unworkable because it required proof that the conduct in question would not have been possible in a competitive market, and that the purpose of the conduct was anti-competitive. The new provision – which will align New Zealand law with Australian law – focuses on the effect of the conduct rather than its purpose and removes the requirement that the firm ‘takes advantage’ of its market power in engaging in the conduct.

What this means in practice is that businesses with substantial market power will for the first time need to assess the effect of their commercial practices on competition in the markets in which they operate to avoid facing the significant penalties and other remedies available under the Act.

There are two cases pending in Australia which may give some guidance on how the new provision is interpreted before the New Zealand law changes take effect.

Increased penalties for anti-competitive mergers

In addition, the government proposes to increase the penalties for an anti-competitive merger from $5 million to the greater of $10 million, three times the value of any commercial gain, or ten per cent of turnover of the business.

Minister Faafoi has said the fact the Commission has undertaken eight investigations into possibly anti-competitive mergers since 2018, suggests that the current penalties – unchanged since 1990 – are not acting as a sufficient deterrent.

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