Chapter 1: Overview and context of the review
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Introduction
Competitive and dynamic markets are critical to economic productivity and the welfare of New Zealanders. Effective competition settings are particularly important in a small, geographically isolated economy like New Zealand, which can make markets less subject to competition from overseas firms. Lower levels of competition mean that firms can face weaker incentives to innovate, improve efficiency, and provide better services at lower prices to consumers.
The Commerce Act 1986 (Commerce Act or Act) is New Zealand’s primary competition legislation, administered and enforced by the Commerce Commission (Commission). The Act’s purpose is to promote competition for the long-term benefit of consumers. It sets out the generic competition settings that apply to anti-competitive conduct (Part 2), mergers and acquisitions (Part 3) and the Commission’s clearance and authorisation processes (Part 5), all of which are the focus of this discussion paper.
The Government is reviewing the Commerce Act to ensure our competition settings remain fit for purpose. This is the first time many of these provisions have been reviewed in over 20 years and coincides with major reforms of competition law underway in Australia. The aim of this review is to enhance competition to help deliver the Government’s objectives of rebuilding the economy, decreasing the cost of living and lifting productivity.
This discussion paper focuses on:
- Reviewing the merger control regime – ensuring the Commission has tools to prevent or remedy all mergers that are likely to substantially lessen competition.
- Modernising tools to address anti-competitive conduct – ensuring the Commission has up-to-date tools to address anti-competitive conduct between firms with market power.
Context for the review
This review is in the context of:
- International concerns about increasing market concentration, increases in price-cost margins and declines in business dynamism that may be attributable to declines in competition.
- Recent Commission market studies which have identified markets dominated by a few large businesses as being a contributing factor to a reduction in competition, and which have required costly sector-specific interventions.[1] [2]
- The 2024 OECD Economic Survey of New Zealand, which recommended strengthening the merger regime in the Commerce Act, and monitoring reforms underway in Australia. Maintaining regulatory alignment of competition laws between Australia and New Zealand, where that makes sense for New Zealand, can promote certainty for businesses operating across the trans-Tasman market.
- The Australian Government initiating a Competition Policy Review. In Australia, concerns have been raised about markets becoming increasingly concentrated and merger reform has been identified as a priority issue, resulting in proposed legislative change.
These are discussed further below.
The state of competition in New Zealand
Market-based studies provide the best indicators of competition. The Commission’s market studies in the land transport fuel, residential building supplies, retail groceries and personal banking sectors have found that markets in these sectors are not working well for consumers. Mergers in these sectors have contributed to concentrated markets, and a heightened risk of coordination.
Measuring competition at an economy-level is more challenging due to data limitations and methodological issues (eg statistical ‘industry classifications’ are not reliable proxies for the competition concept of ‘markets’). Research by the New Zealand Productivity Hub in 2019 gives measures for the state of competition in New Zealand industries. Over the period 2001 to 2016, results were inconclusive at an economy-wide level, with the strength of competition in some industries increasing and some declining over time. [3]
2024 OECD Economic Survey of New Zealand
The 2024 OECD Economic Survey of New Zealand final report made a series of findings and recommendations that could strengthen the state of competition in New Zealand. It suggested that policy settings could be made more pro-competitive and used to offset the challenges posed by New Zealand being a small, geographically isolated market. It reported that New Zealand’s productivity level remains, “markedly below the OECD frontier.” [4]
Australia’s competition policy reforms
In August 2023, the Australian Competition Review was launched, to be led by a Competition Taskforce and the Australian Treasury. The Australian Competition Review is a two-year rolling review of competition laws, policies and institutions focused on ensuring they remain fit for purpose. It is focusing on reforms that would increase productivity, reduce the cost of living and boost wages. [5]
One of the initial priorities is reform of the merger regime in the Australian Competition and Consumer Act 2010 (CCA). The prohibition against anticompetitive mergers in the CCA is closely aligned with the same prohibition in the Commerce Act, but with procedural differences which had caused challenges for the Australian Competition and Consumer Commission (ACCC). The Australian Government has agreed to a package of reforms aimed at simplifying and strengthening the merger settings. On 10 October 2024, the Australian Government introduced the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 (Australian Amendment Bill) to the Australian House of Representatives. The Australian Amendment Bill has passed through all Parliamentary stages and is to commence on 1 January 2026. [6]
Australia is our most important trading partner, with two-way trade of goods and services accounting for $29 billion in 2022. It is the first export market many New Zealand companies look to, to grow. For Australia, New Zealand is its second largest source of tourists, fourth largest investment destination, and top export destination for Australian small and medium enterprises (SMEs)
Alignment of competition laws promotes a Single Economic Market within New Zealand and Australia. It does this by reducing the compliance burden for businesses operating in both jurisdictions, facilitating cooperation between regulators to address anticompetitive conduct that crosses borders, and enabling institutions in each jurisdiction to learn from each other to promote better regulatory outcomes. However, alignment does not necessarily mean adopting the same laws and processes. For example, New Zealand’s small size, can increase regulatory costs per capita and so a full assessment is needed before regulatory change is made.
Scope of this discussion paper
The discussion paper is structured as follows:
Chapter 2: Mergers
- The substantial lessening of competition test
- Substantial degree of influence
- Assets of a business
- Mergers outside the clearance process
- Behavioural undertakings
Chapter 3: Anti-competitive conduct
- Facilitating beneficial collaboration
- Anti-competitive concerted practices
Chapter 4: Code or rule-making powers and other matters
- Industry codes or rules
- Modernising court injunction powers
- Protecting confidential information
- Minor and technical amendments to the Commerce Act
While this paper sets out our initial views and seeks feedback on these specific issues, we welcome feedback on how New Zealand’s overall competition settings are working.
Criteria for assessing options
Any options or proposals for change to the Commerce Act will be measured against the following criteria:
- Effectiveness: The potential for each policy option to promote competition for the long term benefit of New Zealand consumers.
- Practicality: The cost and simplicity of each policy option.
- Certainty: The potential for each policy option to allow stakeholders to predict how regulation will apply, so they can prepare for how that regulation might affect them.
- Flexibility: The extent to which each option allows the regime to adapt to changes in markets.
- Regulatory efficiency: The extent to which each option enables the regime to provide appropriate levels of regulatory scrutiny while minimizing regulatory burden.
Proposed process and timeline
As set out in the timeline below, submissions close on 7 February 2025. MBIE will then analyse all submitter feedback and provide advice to the Minister of Commerce and Consumer Affairs. The Government will then decide whether changes should be made to the Commerce Act.
- 5 December 2024: Discussion paper released
- 7 February 2025: Submissions close
- February 2025: Recommendations to Minister
- March/April 2025: Cabinet decisions
Footnotes
[1] Elevated inflation and declining productivity are also driving concerns.
[2] Australian House of Representatives Standing Committee on Economics (2024) Inquiry into promoting economic dynamism, competition and business formation.
Better Competition, Better Prices(external link) — Parliament of Australia
[3] Competition in New Zealand: highlights from the latest data - Research note 2019/03(external link) — The Treasury New Zealand
[4] OECD Economic Surveys: New Zealand May 2024, page 47.
OECD Economic Surveys: New Zealand May 2024(external link) — OECD iLibrary
[5] Competition review(external link) — The Treasury Australia
[6] Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024(external link) — Parliament of Australia