Monday, 9 November 2015

Section 36 principles

Most countries have laws aimed at firms with substantial market power, seeking to stop those firms
from "taking advantage" of their very strong market position in ways that restrict the process of competition. In New Zealand, that law is section 36 of the Commerce Act 1986.

The general view of competition experts in NZ is that section 36 is toothless. You can of course find supporters of the law: just call the competition experts advising firms with substantial market power. However the Commerce Commission has basically given up taking s36 cases, which leaves powerful firms unfettered and the rest of us with three options:

  • sack the ComCom & appoint new people with a stronger appetite for expensive but hopeless litigation;
  • change the law; or
  • do nothing.

We've been trying option 3 for a few years but I understand that MBIE is now preparing a discussion paper on the topic, so option 2 might soon be in play. So it's time to think about how to improve and we might as well start getting our thoughts in order now, before the discussion paper emerges.

Building on Andrew Gavil's excellent work from 2013, some principles might be a good start. I'll get the ball rolling...


1: Privilege.
Firms with substantial market power are in a privileged position in our society. NZ has small domestic markets and influential people have successfully argued for relaxed merger policy on the basis that it reduces unit costs, so we have lots of market power.

2: Perspective. The advantage taken belongs to the perpetrator, so analysis should focus on that firm's perspective, not some hypothetical firm.

These principles seem rock solid to me but both of them add teeth, making life harder for firms with substantial market power. What about the opposite problem of condemning efficient conduct? We still want the big firms to fight hard after all. Come in item 3...

3: Proportionality. This would be the fertile hunting ground for the monopolist's friends. They'd get creative seeking ways to rebut the presumption that firms with substantial market power tend to play dirty. There are some obvious lines available: if an elephant is competing with tigers, harm visited upon gnats that would be trampled by either group should not be protected. 

Basically I'm suggesting that we should be harder on conduct because we are softer on structure. In other respects it's just business as usual: case law will develop guidance for big firms to the extent they're willing to pay for it. 

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