The New Zealand Commerce Commission (NZCC) is consulting on new draft Misuse of Market Power Guidelines (Draft Guidelines). Submissions are due by 18 November 2022.
Purpose of and background to the Draft Guidelines
The Draft Guidelines explain how the NZCC proposes to assess conduct under the new test for misuse of market power which will come into effect on 5 April 2023. This is an opportunity to influence that approach.
The new test will prohibit firms with substantial market power from engaging in conduct that has the purpose or (likely) effect of substantially lessening competition in that market or any other market they (likely) supply or acquire, including indirectly through other persons, goods or services.
This will replace the current test which prohibits firm with substantial market power from taking advantage of that SMP for an anti-competitive purpose(s). This has been seen as an unworkable test because single firm conduct is effectively defensible if it is “normal business conduct” by non-dominant firms. The NZCC has made no secret of its limited appetite to take enforcement action when unilateral conduct could be so easily defended.
The new “effects” test will align New Zealand law with Australia. Misuse of market power under the new test can also now be authorised by the NZCC on public benefit grounds.
Types of conduct identified in the Draft Guidelines
The Draft Guidelines indicate the new test is “likely to capture anti-competitive conduct that was not previously prohibited”. The Draft Guidelines identify some types of conduct that risk substantially lessening competition based on NZ overseas experience and provide examples. Those conduct types, as described in the Draft Guidelines, are:
- Refusal to supply an input. This means a firm with substantial market power may in some circumstances be required to supply a wholesale input to a downstream competitor.
- We note this could be an area of major change from the current test. Previously the Efficient Component Pricing Rule (Baumol-Willig or “opportunity cost” pricing) has been permitted, provided it was consistent with Kahn’s principle of competitive parity (although this aspect was sometimes overlooked).
- Margin/price squeezing. This generally occurs when a vertically integrated firm sets prices in the upstream wholesale market in a manner that prevents efficient competitors from profitably operating in the downstream retail market.
- Exclusive dealing. This generally occurs when a firm trading with another imposes some restrictions on the other’s freedom to choose with whom they deal.
- Loyalty rebates and conditional discounts. For example customers may be required to purchase a certain proportion of their stock from a firm. This can reduce the ability of other suppliers to compete effectively.
- We note volume discounts are often distinguished from loyalty discounts. Parties may want to submit on the proposed language on these points.
- Tying and bundling. Tying occurs when a product is only available if the buyer also buys another product. Bundling occurs when a supplier offers multiple products for a lower price If the products are purchased as a package.
- Predatory pricing. This occurs when a firm substantially reduces its prices for a sustained period or at strategic times to induce exit or deter entry.
Other theories of harm recognised include:
- Buyer power theories of harm when firms have substantial purchasing market power. A firm might have substantial market power as a purchaser if it has the ability to worsen prices or terms of trade to sellers.
- Raising regulatory barriers for example standard setting.
- Abuse of legal rights for example utilising legal or regulatory proceedings in an unreasonable or vexatious manner in order to hinder or exclude rivals or potential entrants.
- Restricting interoperability. This refers to restricting the ability of a firm’s products to operate with the products of competitors.
- Self-preferencing. This involves conduct designed to favour a firm’s own products over those of its competitors.
- Brand proliferation/saturation. This involves conduct that produces a large number of substitutable brands for the same product.
- Forced free riding. This involves conduct to appropriate the innovation or effort undertaken by rival firms.
However, the Draft Guidelines make clear the prohibition will not prohibit:
- Firms from possessing substantial market power.
- Firms from charging high prices to end consumers.
- Firms with substantial market power “out-competing” their competitors through superior innovation, better products, lower prices and/or efficiency.
Please contact us if you have any questions or would like assistance with a submission.
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