Seeing eye to eye

In my post the other day, about the progress of our latest effort at competition law reform, I noted that the Select Committee dealing with it had reported unanimously supporting a range of law amendments, but apparently not unanimously supporting the overall Bill. 

Turns out that in fact the committee was unanimous about the Bill and the initial statement that it had been passed "by majority" was a mistake by the Committee. Last Thursday it updated the record here and now says: 

"In our final report to the House, we recommended, by majority, that the bill be passed, with all amendments recommended unanimously. This was incorrectly recorded and does not accurately reflect the committee’s resolutions. We wish to correct our recommendation to the following:

The Economic Development, Science and Innovation Committee has examined the Commerce (Promoting Competition and Other Matters) Amendment Bill and recommends that it be passed. We recommend all amendments unanimously".

At one level this is all just technical detail. More substantively, however, it does raise the probability that the unanimous view of the Committee will in fact carry through to the final form of the legislation.

The shape of things to come?

Last month the Economic Development, Science and Innovation Select Committee produced its report on the Commerce (Promoting Competition and Other Matters) Amendment Bill, which "amends the Commerce Act 1986 to modernise and strengthen competition settings". The marked-up Bill from the Committee, incorporating its report, can be found here. 

In principle the recommendations could be over-ridden by the whole House, and I frankly don't know how often that happens. But my guess is that given that the recommendations were unanimous, a complete overhaul is rather unlikely (that said, the Committee recommended "by majority" rather than unanimously that the Bill be passed, so I may be overdoing the degree of political harmony). In all likelihood, though, I think we have a decent steer on what the ultimate Act will look like.

By and large the Committee endorsed the thrust of the Bill as it stood, though it made a substantial number of amendments to various proposed sections. Only two elements of the Bill were thrown overboard: the proposal to allow the Commerce Commission to carry out market studies of pro-competitive regulation, and the proposal to repeal s46 of the current Act.

Giving the heave-ho to pro-competition market studies wasn't because the Committee didn't like the idea, but rather because it reckoned the existing market studies power in Part 3A of the Act already allows the Commission to do them. And just to be totally clear about it, it proposed incorporating, after the existing s51B(3), a new subsection 3A, "To avoid doubt, the [market study] recommendations may, without limitation, be made for the purpose of (a) reducing regulatory barriers to competition; or (b) the development of regulation to promote competition".

Junking the unnecessary new kind of market study power also dealt to one of its more questionable elements. Originally the Bill would have allowed the Commission to require third parties "(a) to prepare and produce forecasts, forward plans, or other information and provide them to the Commission; and (b) to apply any methodology specified by the Commission in the preparation of forecasts, forward plans, or other information". The Committee didn't like the sound of that, and neither had I in my submission: the Committee asked me about it in my Zoom session. In the end the Committee said that "Some submitters opposed enabling the Commission to compel parties to create new information, such as forecasts, describing it as overly intrusive and inconsistent with established disclosure principles. We are also concerned that this proposed information-gathering power may not be justified".

The other proposal to get the chop was repeal of s46. In the Committee's own words, "Section 46 is one of a number of provisions that provide for exceptions to the application of Part 2 of the Act (Restrictive trade practices). It draws a bright-line boundary by providing that acquisitions of assets of a business or shares are dealt with through the merger regime in Part 3 (Business acquisitions) rather than also being able to be challenged under Part 2 ... A number of submitters argued that repeal of section 46 would expose ordinary merger activity to Part 2 scrutiny, chilling legitimate commercial activity. We recognise that submitters value a clear and statutory boundary. We therefore recommend deleting clause 8 of the bill, to retain section 46".

Otherwise the proposed changes went through, albeit with some amendments. Here are my personal highlights.

There will be a new statutory notification regime to better support collaboration between businesses, and along similar lines the Commerce Commission will be able to grant class exemptions for categories of low-risk conduct, staring with collective bargaining by small firms (the Committee set $3 million in annual revenue per firm as the 'small' criterion) and retail price maintenance. 

The Bill proposes introducing corrective action orders for contravention of Part 2 of the Act (restrictive trade practices). I couldn't agree more. As I said in my submission (p3), "This is a splendid idea and frankly I’m surprised that we all hadn’t thought of it long ago. Fines (the current penalty) are a deterrent and a punishment, but I’m perfectly sure that what consumers would value most is a putting right of the rort they were exposed to". The Committee clarified that private parties, and not just the Commission, will be able to apply for these orders.

The merger control regime is being beefed up in a number of significant ways. 

While there will still be a voluntary merger notification system, the Commission will (if it hears of one) be able to "call in" a merger that might be of concern, and require the parties to suspend it and to hold the businesses separate for 40 working days. 

The concern over "killer" acquisitions - allegedly buying out prospective competitors before they become a real issue for incumbents - is addressed by expanding the definition of a post-merger "substantial lessening of competition" (SLC) to include "creating, strengthening, or entrenching a substantial degree of market power" (I'd guess the 'strengthening' and, especially, 'entrenching' limbs will be doing the heavy lifting). This new SLC definition is in play only for the merger bits of the Act: the Committee said that "We consider that applying the clarification across the Commerce Act [as a whole] may create uncertainty about legitimate competitive responses, because such conduct could be framed as "strengthening" or "entrenching” a firm’s position".

And the concern about "creeping acquisitions" - allegedly where an incumbent quietly hoovers up market influence in successive bite-sized chunks - is addressed by allowing the Commission to look at a new merger in the context of acquisitions over the past three years, and not just from a standalone perspective. The Committee clarified that they can't be any old acquisitions but must involve "the same, substitutable, or otherwise competitive goods or services".

All of these changes can be seen as a toughening up of the merger regime, to prevent anti-competitive mergers sneaking through the cracks. But there was one recommendation that can be thought of as a liberalisation, and that's the proposal to allow the Commission to accept "behavioural undertakings" as part of a merger approval. 

For those new to it, currently (from my submission, p2), "s69A [of the Commerce Act] allows the Commission to accept only one kind of undertaking from an applicant for a merger clearance or authorisation – an undertaking "to dispose of assets or shares specified in the undertaking", i.e. a promise to divest some assets so that a post-merger competitor can acquire them and act as a more effective competitive constraint on the merged entity. The Commission is specifically forbidden in s69A(2) from accepting any other kind of undertaking, even if some other kind of behavioural, rather than divestment, undertaking would solve any competition issues".

"This", I concluded (and a fair few of the folks in the competition game have the same view), "doesn’t make a lot of sense, and isn’t standard international practice". So behavioural undertakings will now be acceptable in principle, and the scope for the Commission to accept them has been widened a bit. They could kick in where, for example, divestments of the scale needed to address competition concerns are simply not reasonably practicable.

And finally there's predatory pricing. which is proposed as a new s36C of the Act and which involves anyone with market power "(a) pricing below Average Variable Cost or Average Avoidable Cost (b) pricing above Average Variable Cost or Average Avoidable Cost but below Long-run Average Incremental Cost or Average Total Cost if the pricing is for an exclusionary purpose", with all these cost  terms defined in the proposed Act. 

I can see why this has been proposed: I'm still ambivalent about its necessity or practicability. We'll see. In any event it may crop up again: the Labour and Green members of the Committee, in a "differing view" at the end of the report, said that "The proposed use of long run average cost as an objective benchmark was consistent with established international competition practice and would have been a small step forward". I read that as saying they would have preferred a cost test that would have led to more prices being found predatory, but if predatory pricing is your main thing, maybe you should read Russell McVeigh's commentary on the Committee's report as they see it as reflecting some debate within the committee about whether to go with predatory pricing or not. 

Those members would also have liked to have seen industry-specific codes of practice brought in - so would I - and also wanted to see "amendments ... that would have provided contractors initiating collective bargaining with a safe harbour from retaliatory conduct by contractees, despite concerns raised during submissions that without such protections the right to collectively bargain may exist in theory but not in practice". So while we are undoubtedly nearer the end of our lengthy and rather slow competition reform journey, there's probably a bit more change still to come.

Oh no it didn't...

Earlier this month I wrote up the latest slew of competition policy reforms, and mistakenly included one proposed reform that actually wasn't endorsed by Cabinet. 

It's the proposal for the Commerce Commission to be able to initiate Australian-style industry codes. As someone's helpfully pointed out to me, "the proposal for industry codes / pro-competition rules wasn’t agreed to by Cabinet, so it’s not part of the reform package. It’s a very understandable error - the Cabinet paper discusses the proposal in detail, and you’d only spot it wasn’t agreed to if you compared the paper with the Cabinet minute". 

Indeed: the Cabinet minute records what Cabinet agreed to, but is silent on proposals it turned down, and it flagged away Commission-led codes. Bit of a pity, really, as I think codes can fill a useful niche short of full-scale regulation (and this Cabinet is clearly averse to any more sector-specific statutory regulation along supermarket or petrol station lines). Never mind: the correct situation is that it's a non-runner for now.

The other shoe drops

This week's second batch of competition policy reforms, announced jointly by Finance Minister Nicola Willis and Commerce and Consumer Affairs Minister Scott Simpson, was welcome from any number of perspectives. The press announcement is here, there's a useful fact sheet here, and if you missed the first batch I wrote about them here. If you're an irremediable policy tragic, you'll find the Cabinet paper supporting the latest reforms here.

For a start, on the substance, they've made almost all the right calls. 

On mergers, the reforms will amend the definition of "substantial lessening of competition" to extend to "conduct that creates, strengthens, or entrenches a substantial degree of power in a market" (I'm quoting para 19 of the Cabinet paper), which not only helps make it explicit that 'killer' acquisitions are in the frame but also harmonises with Australia's approach. 'Creeping' acquisitions - individually apparently insignificant purchases that cumulatively build up to a degree of market power - also got attention. It appears that it wasn't clear that the Commission could look back at the past track record when considering the latest in a series, but in future it will be able to take the evidence of the previous three years into the balancing act, with the proviso (para 24) that "The Commission will not have new powers to unwind past acquisitions, nor will it affect its existing ability to take action where a past acquisition was independently unlawful".

Importantly, the Commission will now be able to accept behavioural undertakings as part of a merger approval. For no obviously compelling reason, "The Commission currently lacks the authority to accept voluntary behavioural undertakings from merging firms (other than in relation to the disposal of assets or shares). These undertakings are commitments proposed by merging firms about their future conduct and are commonly used overseas, including in Australia and the United Kingdom, to resolve competition issues while preserving potential merger benefits. Feedback from public consultation, especially from the business and legal communities, showed strong support for allowing the Commission to accept these undertakings' (para 28). As a result, "The current gap in the merger regime may lead to the rejection of mergers that could otherwise be cleared with appropriate behavioural remedies, resulting in missed opportunities for efficiencies and consumer benefits" (para 29). It will mostly be up to merger applicants to suggest them, and up to the Commission to accept or reject them (or, I'd guess, have a bit of to and fro).

Whether there are swathes of anti-competitive mergers occurring that haven't been voluntarily notified to the Commission is debatable - New Zealand's a small place, word gets round, and the Commission can read the newspapers - but in any event the Commission is getting two new powers to help cope with any that come along. There'll be "a targeted “stay and hold” power to suspend the completion of a potentially anti-competitive merger for up to 40 working days. This would allow time to assess competition risks before the transaction is completed" (para 33) and "a targeted “call-in” power to require parties to seek clearance if the Commission considers the transaction may substantially lessen competition. This notice would pause the transaction until clearance is granted, declined, or the process is terminated" (para 34). Sensibly, the reforms shied away from a mandatory merger reporting regime.

The Cabinet paper also strongly suggests that the current government is deeply averse to any more single-sector regulation. "Previous governments have responded to competition challenges by introducing repeated sector-specific regulation. Strengthening New Zealand’s overall competition framework will better equip the Commission to address markets with high barriers to entry and expansion, reducing the need for repeated sectoral regulation, such as the Grocery Industry Competition Act 2023 and the Fuel Industry Act 2020. These interventions involved lengthy policy and legislative development processes and have not always delivered the broader, enduring improvements to market dynamics that a more robust and flexible competition regime could achieve" (para 9). Looking, for example, at the data on petrol importer margins (available here), you'd be tempted to agree.

Making the Commerce Act more effective across the board is one answer: in addition, the Commission will get powers to deploy a local version of Australia's industry codes*. "We propose creating a power to make targeted regulations to guide conduct among market participants to break down barriers to entry and expansion" (para 41). The Commission can only regulate when "the market in question is concentrated, whereby market power is held by only a small number of firms; there are barriers to entry and expansion; the market is not working well for consumers, and the proposed rules are consistent with the purpose of the Act" (para 44, slightly abridged). 

Personally I think the further requirement that Cabinet signs off on any Commission-initiated regulatory codes is a step too far. The stated justification is "To ensure this power is used proportionately and only as a last resort" (para 44), and maybe there is a case that democratically accountable representatives ought to sign off on non-elected technocrats getting too heavyhandedly involved in bossing entire industries around. I've noticed, too, when presenting to Select Committees, that some MPs evidently have a fear that an overzealous Commission might go feral. To me, though, it's another example of successive governments' fetish for costly micromanagement: far too many things already have to go to Ministers or Cabinet, and this doesn't need to be yet another one. MBIE, when preparing the regulatory impact statement for these reforms, looked at an 'Option 3': "Commission-issued pro-competition rules – Allows the Commission to develop and implement rules independently, without separate Cabinet approval each time". That was a path not taken, but should have been, and in the fulness of time I'll likely front up to a Select Committee and argue for it.

And then there's predatory pricing. "Allegations of predatory pricing have arisen in the aviation, grocery and building supplies sectors, but enforcement remains challenging. Part of the challenge is the lack of clarity around the circumstances when prices are so low that they breach competition law" (para 51). So the reforms suggest some pricing tests that could more effectively ping predatory pricing under s36 of the Act: "Pricing below Average Variable Cost (AVC) or Average Avoidable Cost (AAC) over a sustained period is presumptively unlawful", and "Pricing above AVC/AAC but below Long-Run Average Incremental Cost (the average cost of producing an additional unit of output over the long-term**) or Average Total Cost (total costs divided by the number of units produced) over a sustained period is presumptively unlawful only where there is evidence of exclusionary intent" (para 53), with some sensible carve-outs: "short-term promotional pricing, including one-off specials, de minimis discounts, or mistaken pricing, are not captured unless part of a sustained pattern of pricing behaviour" (para 55). I have to say, I'd like to have been a fly on the Cabinet room wall when Ministers were confronted with 'Long-Run Average Incremental Cost' ...

Gibes aside, the reform's heart is in the right place, and maybe it'll reduce the scope for judges to see vigorous incumbent reaction to competition rather than strategic deterrence of rivals (yes, I'm thinking of Pink Batts***), but we'll see. As anyone who has been up close and personal with a s36 case knows, it's hard to magick away the complexities. 

There's other good stuff which I'll leave you to explore, but I'd like to add a few words about process.

By recent New Zealand competition policy standards, this has been a quick and effective exercise. While there was a bit of a gap between consultation closing (early February) and the first package of reforms (mid August), and the contents of the first tranche were distinctly modest compared to the range of topics consulted on, the Minister promised that "Further decisions on the merger regime, potential new industry codes, and other changes will be announced over the coming weeks". He - and Nicola Willis - have very largely delivered, though the odd issue, like 'concerted practices', appears to have fallen into a void. 

And between them they had the heft of being able to get an early slot in the always crowded legislative queue: "We propose that the policy outlined in this paper be given effect through the Commerce (Promoting Competition and Other Matters) Amendment Bill, which is at priority category 5 (to proceed to Select Committee by the end of 2025)", which likely means enactment in 2026. Good stuff all round: it's nice to see effective competition being given the priority it deserves. And while I'm in a generous mood, a hat tip too to whoever held the pen on the Cabinet paper: these are complicated issues, and whoever wrote them up did a fine job of making them clear. 

*Update (September 30) - I didn't spot it but in the event Cabinet actually decided not to endorse the industry code idea. See today's post.

**I've deleted an apparently superfluous 'costs' here

***Carter Holt Harvey Building Products Group Limited v Commerce Commission [2004] UKPC 37

It's a start

Last week's competition policy announcements by Scott Simpson, the Minister for Commerce and Consumer Affairs, were some modest steps in the right direction (and a nice little coup for the Competition Law and Policy Institute of New Zealand's annual workshop, where he made the speech).

He was surely right to make it easier for businesses to collaborate where there are likely to be net consumer benefits, given that the Commerce Commission's current authorisation process is "too complex, costly, and slow for business". Authorisation as it is currently practised isn't so much like using a sledgehammer to crack the proverbial nut: it's more like commissioning a squadron of war elephants to trample on it for months.

He also said that "We have also heard in your submissions" - the ones in response to MBIE's turn of the year consultation on 'Seeking feedback to improve competition in New Zealand' - "that businesses and individuals are increasingly reluctant to share information with the Commission because of fears confidential information could be released under the Official Information Act, potentially leading to retaliation or misuse of confidential information by competitors. This is undermining the Commission’s ability to collect evidence and receive useful information, particularly in investigations and merger clearances".

This is something that has been rumbling for a while, and he's done something about it. I can't say that I warm to one of his solutions, to exempt information provided to the Commission from the ambit of the OIA for 10 years, as I reckon we could do with less whiteanting of the Act,  but I suppose it will do the job in its way, and the other proposals (more flexible confidentiality orders, and whistleblower protection) look good ideas.

If I can be grumpy for a moment, I'd like to observe that this concern for confidentiality wasn't so obviously to the fore the last time Parliament looked at the Commerce Act, when in 2021 it introduced s99AA to allow the Commission to share information with "a public service agency, a statutory entity, the Reserve Bank of New Zealand, or the New Zealand Police", contrary to my elegant and well reasoned submission.

What struck me otherwise about the Minister's announcements was how much was still to come. The MBIE consultation was open-ended, but included a questionnaire (which many of us filled in) indicating what they most wanted to hear about. They included "the effectiveness of the current merger regime"; how to deal with "creeping acquisitions" and entrenchment of market power, for example, through 'killer' acquisitions of nascent competitors; whether to align our approach to mergers with the Aussies'; and a big question asking "How effective do you consider the current merger regime is in balancing the risk of not enough versus too much intervention in markets?". MBIE wanted to know whether potentially non-competitive mergers that were not notified to the Commission are an issue, and whether the Commission might need extra powers to deal with them (such as a stay or hold separate power). And MBIE wanted to know whether the Commission should be able to accept behavioural undertakings as part of a merger approval.

Outside mergers, MBIE also wanted to gather views about potential anti-competitive 'concerted practices' and what to do about them, and what role industry codes or rules might play in bolstering the competition regime. And then there were various rats and mice, including whether the Commission's injunction powers need modernising, views on assorted technical and minor amendments, and an open-ended "what else have you got to say".

So it would be fair to say that - six months after consultation closed - the announcements last week dealt to only two of the 11 broad topic areas MBIE canvassed: we've had some baubles, but no Christmas tree. The Minister said that "Further decisions on the merger regime, potential new industry codes, and other changes will be announced over the coming weeks". Given that we've been on the slow side in recent years when it comes to competition policy reform, compared with the Aussies in particular, a quick policy timeframe is good to hear.

CLPINZ 2024

The 35th Annual Workshop of the Competition Law and Policy Institute of New Zealand (CLPINZ) was held last week at the Northern Club in Auckland, and - despite breaching the universally acknowledged convention that every Kiwi conference must at some point offer sausage rolls - was otherwise a well-attended and highly interesting day and a half. Hat tip to the organisers on the Board of CLPINZ and to the indispensable Charlotte Emery at Conference Innovators.

It led off with outgoing CLPINZ chair Anna Ryan introducing the keynote lecture from UCLA's John Asker (UCLA link, personal site, Cornerstone Research site), on 'The Competitive Effects of Information Sharing'. John reminded us that, since at least Hayek, we should think about markets and prices as an immense, efficient, decentralised, information-sharing mechanism for allocating resources, and the integrity of prices really matters for the outcome of the process. But there is a potential tension between the necessary information-sharing in the market, via price signalling, and the possibility of people using the information to collude and undermine the benefit of the free flow of signals. And it's not hard to see real life examples: he cited the case of a Perth-based web-based scheme which had aimed to show each petrol station's prices so that consumers could get the cheapest petrol, but which eventually degenerated into a mechanism enabling the petrol companies to coordinate prices. While some competitive effects can be reasonably obvious, John said that, unlike in areas like mergers where there are known analytical techniques, economics hasn't yet developed the full suite of forensic tools that would enable competition regulators to sort out the sheep from the goats. And when you do apply what tools are available, you don't always get unequivocal answers: his modelling (with coauthors) of timber 'stumpage' auctions, for example, where competitors had information about each others' timber inventories, came up with mixed results: "diagnosing how competition is impacted in non-price information sharing is complicated, and can lead to an outcome where reasonable people might disagree as to whether competition has been adversely impacted".

Keynote speaker John Asker, flanked by session chair Anna Ryan; Fionnghuala Cuncannon as commentator

Commentator Fionnghuala Cuncannon felt that ideally you would like to know when information sharing is harmful, and what is allowed or not under the Commerce Act, and hopefully the Venn diagram of the two ideas would overlap enough to give you a operational basis to act from. On the first point, she agreed with John that deciding on competitive harm is not settled, though in some cases you may well see instances where things look wrong, one example being the price following behaviour based on the 'main port price' that the Commerce Commission noticed in its petrol market study (see for example Figure X3 and paras X35-6). On the second she felt that the Act was "okayish" as it stood, but maybe we could have a think about buttressing it with the likes of the "concerted practices" provisions in s45(1)(c) of Australia's legislation.

Emma Ihaia, the chair of the session on 'Tikanga - is it relevant to Competition Law', introduced it by saying that tikanga is "an area largely unknown to many of us in the room", and that assessment certainly included me: by way of reference for people equally uninformed, Wikipedia says "Tikanga is a Māori term for Māori law, customary law, attitudes and principles, and also for the indigenous legal system which all iwi abided by prior to the colonisation of New Zealand". By the end, we were all a great deal better up with the state of play. Te Aopare Dewes said that use of tikanga is part of a transformational change in Aotearoa New Zealand, that it is now part of our common law post Ellis*, and that it will have relevance for the statutory interpretation of competition law. She also pointed to the Commerce Commission's use of tikanga concepts such as kaitiaki (stewardship, as for example on p13 of the Commission's latest annual report) and its awareness of Māori perspectives in its September 2023 Moana/Sanford merger decision**, although she reckoned the merger would likely have been cleared even without a tikanga lens. The Hon Justice Christian Whata (who headed the Law Commission study which produced the definitive report on the legal dimensions of tikanga) then took us through tikanga as custom, values, and law and talked about "the principles of engagement" which will need to apply as tikanga and European law (if I can call it that) learn to jog along together, including both relevance (tikanga won't affect every matter at issue) and reconciliation (there's no longer a presumption that European law prevails if push comes to shove). And finally Simon Peart took us through some hypothetical case studies the panel had devised to see how the two legal perspectives might or might not play nicely together. One of them (an agreement between otherwise competing Māori fishing companies to place a rāhui on fishing, to conserve the stock, which might amount to output restriction under the cartel provisions of the Commerce Act) didn't look especially problematic: it was fine from the tikanga side and (I'd guess) a strong candidate for authorisation from the Commission's side. The other (one Māori ski operator denying a competitor a licence to operate) was a good deal trickier to reconcile, and reminded us that not all of these issues are going to be a gentle stroll in the park.

The tikanga panel discuss some case studies: L-R, Te Aopare Dewes, Hon Justice Whata, Simon Peart, and session chair (and incoming CLPINZ vice chair) Emma Ihaia

Paul Comrie-Thomson chaired the next one, 'Wellington, we have a problem!', where barrister and incoming CLPINZ chair Ben Hamlin made a convincing case that exemptions from the Commerce Act for "the Crown" are both a legislative mess and poor public policy. Yes, s5 of the Commerce Act binds "the Crown is so far as the Crown engages in trade", but both "the Crown" and "engages in trade" are poorly defined. The Crown (however defined) also has extensive (though nor unfettered) scope to limit competition when not engaged in trade, and as a matter of good public policy it would be better if that scope was subject to some sort of overriding rationale or principle. Ben suggested that "bodies exercising public power should only be able to limit competition where expressly authorised by Parliament, it is reasonably necessary to achieve some public purpose, or it is permitted by a Commission authorisation", and he's drafted a Bill that would legislate along those lines (he's interested in feedback and assistance in polishing it up, so feel free to contact him). In these endeavours Ben was enthusiastically supported by the commentator, Dr Eric Crampton, who pointed to a range of examples of what he regarded as anti-competitive regulation (eg incumbent professionals being allowed to act as the gatekeepers assessing new entrants wanting to ply their trade) and which arise because "The Commerce Act provides broad exceptions for the Crown, particularly in relation to activities that affect commerce but are not considered to be in commerce".

The 2023 workshop had pioneered a new concept, the "Next Generation" session, where rising stars in the competition and regulation world get to strut their stuff, and it worked so well that it was back this year, again chaired by Will Taylor. Russell McVeagh senior solicitor Callum Dickson spoke on 'Privatisation in the space industry': one takeaway was that governments can be quite smart in organising procurement so that they're not at the mercy of a few suppliers or one, in this case suppliers of rocket launching services. Wynn Williams associate Rachael Monkhouse talked about 'The application of competition law to professional sports', where it's evident that sometimes sport gets carved-out treatment that to my eyes at least isn't always defensible. And Houston Kemp economist Nick Twort spoke about 'New analytical tools for understanding retail competition', and in particular the location data that can be cheaply hoovered up from your mobile phone and which can give improved empirical backing for regional market definition, where previously you and I might just have drawn a 5 kilometre circle around an outlet. All good stuff, and while on the topic of up and coming talent, the winner of the inaugural 2024 CLPINZ writing award was Russell McVeagh's Lydia Christensen, with her article, 'Competition Law and the Environment: Climate Change as a Non-Economic Consideration', where she argues that the Commission "has failed to genuinely engage with climate change factors as non-economic considerations that ought to be balanced against other factors".

Will Taylor (L) introduces the Next Gen speakers: L-R, Callum Dickson, Rachael Monkhouse, Nick Twort

Saturday morning brought us 'Settlement of IP disputes', chaired by Otago Professor Ed Willis and presented in case study format by barristers Earl Gray and John Land. Their argument was that since the the expansion of the definition of a cartel in the 2017 changes to the Commerce Act to specifically mention collusive output restriction, agreements in intellectual property disputes to stop producing things that infringe copyright or patents are at risk of being pinged as a cartel, and the risk is all the more real after the Moola*** case. Their solution is an amendment to the Act (which they have drafted and is ready to go) which would exempt good faith settlements in genuine disputes from the ambit of s30 cartel conduct. We need to be wary of anything that might open the door to the rather despicable 'pay for delay' sham patent settlements we've seen in overseas pharmaceutical markets, but that said, I can see the issue that confronts genuine settlements. Part of me wonders about the legal reasoning - how can it be an output restriction if the output allegedly restricted could never have been legally produced in the first place? - but when I asked the question, it didn't seem to cut any ice with my learned friends in the law. I also got the distinct impression that the Commission would be unlikely to bestir itself in cases where, on the facts, like in Earl and John's dairy packaging machinery example, there's clearly no collusive anti-competitive intent.

Finally we got to what Anna Ryan later described as "almost a second keynote address", and it was: Danielle Wood, chair of the Australian Productivity Commission, spoke on 'Competition Policy: Back in Fashion?', in a session chaired by her former colleague Hayden Green. In Australia, the answer to her question is, absolutely yes: they are pressing on with further reform (after two thorough previous goes, the 'Hilmer' and 'Harper' reviews), with their current rolling well-resourced Competition Review and its Expert Advisory Panel (of which Danielle is a member, as is John Asker) and which has already produced draft M&A legislation to address eg 'killer' and 'creeping' acquisitions. It is also tackling other good ideas, including addressing the epidemic of non-compete agreements which is anticompetitively blighting labour market mobility, and working on the next instalment of a National Competition Policy (programmes of reform agreed between the Federal and State governments) which might encompass things like easing parallel import restrictions. The Productivity Commission itself has further useful things on the go, such as liberalising occupational licencing. If you don't have access to the CLPINZ workshop materials, Danielle reprised her presentation in the latest of Treasury's guest lectures, and you'll find both a video and the slides here.

(L) Danielle Wood, chair of the Australian Productivity Commission, and (R) commentator Catherine Montague, manager of competition policy at MBIE

The commentator was Catherine Montague, manager of competition policy at MBIE, speaking in a personal capacity rather than presenting a ministry or government view. She suggested that there was potential impetus for reform in New Zealand, based on the current government's focus on productivity, the example of the Aussies, and the rark-up we got from the OECD in Chapter 3 of their latest economic survey of New Zealand (from the Executive Summary, "Insufficient competition is an important factor underpinning low productivity ... more can and should be done to further improve competition outcomes"). While nothing's yet settled, potential candidates for attention are mergers ('creeping' mergers, amending the SLC test to specify that it would include entrenching market power, and aligning with wherever Aussie gets to), non-competes and other restraints in the labour market, ensuring more attention is given to the competition effect of policy changes, and implementing a Consumer Data Right. 

Fingers crossed that something like this agenda happens, and sooner rather than later: recent experience has unfortunately been that we have been too timid in scope and process, much too slow, and decidedly belated. Either MBIE or our new Ministry for Regulation would be well advised to take a leaf from the Aussie textbook and get on with something similar to their latest Competition Review, and if we're interested in alignment with our friends across the ditch, a couple of cross-appointments (like the ones the ACCC and the Commerce Commission already operate) wouldn't go amiss, either.

*Ellis v R [2022] NZSC 114, [2022] 1 NZLR 239

**The final clearance decision doesn't seem to have been loaded into the Commission's online case register

*** Commerce Commission v Moola.co.nz Ltd [2021] NZHC 3423

The ComCom session at the NZAE conference

Last week the New Zealand Association of Economists hosted a Commerce Commission themed session at its annual conference. It's become a fixture in the past few years, I'm pleased to say, after a drought period where industrial organisation, competition and regulation didn't quite get the focus they deserved.

The Commerce Commission team - Diego Villalobos, who chaired the session, Geoff Brooke and Rae Rho - talk about productivity trends in the regulated electricity lines business, the regulatory cost of capital, and the competitive effect of new unmanned petrol stations

Geoff Brooke's presentation showed the large increases in allowable revenue for the electricity lines businesses (ELBs) which the Commission has proposed for the forthcoming 5-year regulatory period (from the Commission's draft decision). They're stonking great rises - more than a billion dollars extra in what makes up about a quarter of a household's electricity bill - and they add to all that upward pressure on domestic non-tradables prices that is already giving the Reserve Bank conniptions.

But they're justified, as you can see in the graph below which shows the underlying drivers: input cost inflation, a substantially higher weighted average cost of capital ('WACC') reflecting the rise in interest rate costs as ultra-easy monetary policy has changed to the current post-Covid tightening, and provision for increased opex and capex spending.

Diego Villalobos talked about a productivity study that ComCom commissioned from Cambridge Economic Policy Associates (CEPA), and which looked at the productivity trends in the electricity distribution business (i.e. the ELBs again). As ComCom's cover note about the research said, "The productivity of Electricity Distribution Businesses (EDBs), measured as their outputs relative to inputs, is an important performance indicator. Over time, we and other stakeholders expect EDB productivity to increase as they become more efficient and able to deliver the same services using fewer inputs".

Unfortunately the exact opposite has been happening: productivity has fallen, and sharply, as this extract from the CEPA work shows. 'Non-exempt' EDBs in the table are those directly revenue-regulated by ComCom, 'Exempt' are ones owned by local consumer trusts and which are only subject to an information disclosure regime. But either way both groups have shown steadily lower productivity.

And it doesn't seem to be an oddball result of anything weird CEPA has done: Stats NZ data for a broadly comparable sector (electricity, gas, water, waste services, the yellow line in the graph below) show a similar pattern. It's still possible that both CEPA and Stats are missing a trick somewhere along the line - I'd argue that in some sectors of the economy, particularly those closest to the internet and other IT, productivity is being systematically underestimated - but the first best guess looks to be that there is something sector-specific happening.

It would be nice to say we know what's going on here, but we don't. CEPA canvas some explanations in their Section 6, so have a read for yourself and see what you think, but thus far there don't seem to be any smoking guns.

And finally Rae talked about her research on the competitive impact on incumbents of new unmanned petrol stations opening up (full thing here, summary here). Here's her key result. Look at the red dots, which are the price responses from incumbent petrol stations within five minutes' drive when a new unmanned station opens: you'll see a 2-3 cents per litre reduction in the weeks after the new competitor opens. The black* dots are the response by incumbents who are five to ten minutes' drive away: zilch,  nicely demonstrating the geographical market definition for petrol.

As well as this event study examining response to new entry, there was also a cross-section analysis comparing petrol prices where incumbents face at least one unmanned competitor within a five minute catchment: "On average, Regular 91 prices are 6.1 cpl [cents per litre] lower in local markets where at least one non-supermarket unstaffed site is present, compared to those with staffed sites only". 

There was a bit of discussion in the Q&A about whether ComCom ought to go around the country telling local authority land use planners about these results, and encouraging them to free up areas that new unmanned petrol stations could use. Quite right, too: if the councillor for a particular ward would like the credit for petrol becoming 6 cents a litre cheaper for his or her constituents, there's an easy way to help bring it about.

*A correction, I'd earlier mistakenly repeated 'red' again

How's my driving?

At the end of February the Commerce Commission published an interesting "look back" review of what it could learn from how its merger decisions have been made. As the Commission said, "The purpose of our ex-post merger reviews is not to determine whether the original decision of the Commission was correct or incorrect, compared to alternative decisions available to the Commission at the time. Instead, our reviews evaluate key factors of a decision and assess whether the Commission’s predictions have eventuated as expected".

That's fair enough. It's always going to be hard to figure out, with the passage of time, what would have happened (the 'counterfactual') if the Commission had made a different call. That's not to say it's a completely hopeless exercise. It could well be worthwhile at least looking for some (however inconclusive) indications of correctness: post-merger, did prices go up for reasons that weren't obviously related to the likes of input costs? Did innovation slow down? Did consumers see the benefit of the efficiencies the merger claimed to enable? But I accept that you may not get any clearly definitive answers, unambiguously linking the merger to unwelcome outcomes, and in that case the more limited objective of seeing whether you read the winds right at the time may be the best you can do.

And it is well worth doing. For one thing, there's been something of a global pushback against competition authorities that may have been too "soft" on mergers - wrongly seeing, for example, adequate competitive constraint on the post-merger entity when, in fact, there wasn't a realistic prospect of new entry or of expansion by existing competitors. For another, we don't do enough in New Zealand to go back and see if policies and plans and decisions worked out like we thought they would, and if not, why not. And finally it shows a pleasing openness to shed some light on the Commission's processes in an environment when some other agencies have been unnecessarily secretive (eg in their recent round of Briefings to Incoming Ministers) on what the issues are in their bailiwick and what they think about them.

The Commission has, apparently, been doing these post-merger reviews quietly in the background for a while: "The Commission first undertook some ex-post reviews of past merger decisions in 2015 [I'll come back to that one in a moment], focussing on cases between 2011 and 2013. A similar exercise was undertaken in 2016, looking at merger decisions made in 2013 and 2014. The Commission renewed the practice in 2019 with a review of six merger decisions made between 2014 and 2016. This process was replicated in early 2023, looking at merger decisions made between 2017 and 2019". But this is the first time the Commission has officially published its findings, and it covers the six reviewed in 2019 and the seven reviewed in 2023 (although in the end the Commission wasn't able to finish reviews of two of them, so 11 made it through to the final analysis).

The big takeaways? The Commission thinks that market participants are too blasé about the likelihood of new entry/expansion and about the ability and incentive, post merger, of consumers being able to exercise countervailing power, and it's going to be asking for harder (and preferably documentary) evidence on both fronts. And in dynamic markets - where there may be rapidly changing consumer fads and fashions (like tastes in the yoghurt market, in one of the reviewed cases) or where new technologies are being rolled out every other day - it may not make much sense to spend a lot of time on market definition, and it would make more sense to ask, post merger, will the merged entity be better able to get away with bad stuff or will it still face adequate competitive constraint.

The Commission said that this is the first time it has published the findings of these post-merger reviews, and strictly speaking that's true, but the results of the 2015 review are also in the public domain: I wrote about them at the time ('More on entry'). They were given as a presentation at the New Zealand Association of Economists' 2015 annual conference, very likely on the basis of "these are the views of the presenters not the Commission's". Interestingly, it came to similar conclusions about being suitably hardnosed about the likelihood of new entry, particularly where there may be high sunk costs (which might deter a potential entrant if entry were at risk of going pear shaped) or where entry is from overseas (particularly if they have bigger fish to fry than the New Zealand market).

Unfortunately the presentation isn't on the NZAE website (only a short and not very informative abstract), and while it used to be on the Commission's website, it doesn't appear to be now. If you're trying to track it down - I found it as an e-resource on the Auckland Library website, or you may have academic access to the paywalled economics journals - then you're looking for Lilla Csorgo and Harshal Chitale, "Targeted ex post evaluations in a data-poor world", in the 'Special Issue on Advances in Competition Policy and Regulation', New Zealand Economic Papers, 2017, Vol. 51, No. 2, pp136–147. 

Competition and the coalition of chaos

Sounds like a Harry Potter movie doesn't it, and I couldn't resist using it as a title even though, for all the critical "coalition of chaos" knocking, there's actually a fair degree of overlap of policy ambition among the coalition troika, at least when it comes to the regulation and competition issues you and I are interested in.

To save you having to read them, I've worked my way through the two coalition agreements, National/NZ First and National/ACT, and picked out where competition and economic regulation might be up for a rethink under the new government. There's the odd regulatory thing I don't know about (for example, both ACT and NZ First want to junk the Therapeutic Products Act 2023, whatever that is) but otherwise this is a reasonably complete listing of what's likely to be in play. It's possible that some of the ideas in National's 100 point economic plan might yet see the light of day, too, so I've covered that as well.

I've included some personal comments: your opinion may vary.

One thing that commentators on the coalition agreement haven't picked up on is that in the 'Preamble' to both coalition agreements there's a reference to "introducing more choice and competition into social service provision". In practical terms the main immediate outcome is likely to be in education - the ACT agreement features "Reintroduce partnership schools and introduce a policy to allow state schools to become partnership schools" and "Explore further options to increase school choice and expand access to integrated and independent schools including reviewing the independent school funding formula to reflect student numbers" - but as a wider pro-competitive principle it's a good policy stance to start with. Monopoly public sector 'take it or leave it' provision is unlikely to be the best option of meeting everyone's needs. Cushy private sector incumbency doesn't work too well either, of course: while I can't see that it's made it into any of the coalition's priority lists, I quite liked National's proposal (number 47 in its 100 point plan) to "Allow KiwiSavers to invest in more than one provider, driving innovation, boosting competition and putting downward pressure on fees".

Stepping through the NZ First agreement:

"Establish a select committee inquiry into banking competition with broad and deep criteria to focus on competitiveness, customer services, and profitability" - I'm not hugely impressed by this, partly because the Commerce Commission is already part-way through its personal banking services market study and I can't see the point of duplication (accepting that the Commission's terms of reference may have been a bit narrow in the first place), but also because I don't think a select committee is the right forum. There's too much opportunity for grandstanding and for ritual oppositionism, while select committees are overwhelmed as it is and I don't see them being resourced well enough to handle a project of this size. Better options would be to either expand the Commission's market study or go the royal commission route: the Aussies made a lot of progress with their 'Hayne Commission'. But in any event bank CEOs and their teams and advisers can expect to be facing the third degree in some forum or other in coming months.

"Explore options to strengthen the powers of the Grocery Commissioner, to improve competitiveness, and to address the lack of a third entrant to remove the market power of a duopoly" - why not, especially in the area of supplier (i.e. grocery manufacturer) conduct. As the Grocery Commissioner recently said, "We are aware that a number of influential suppliers appear to be opting out of the RGRs’ [supermarkets'] wholesale offers and insisting on supplying direct to smaller retailers but at much higher prices, which is having a negative impact on retail competition". Whether the nuclear option of forced divestment to create the launching pad for a third entrant is on the table, who knows.

"Assess and respond to the impact that energy prices have on inflation including consumer led institutional improvements" - no, I don't know what that means, either, and it could be as innocuous as easier ways to switch suppliers to apply stronger competitive pressure (it works, as I experienced myself), or something along the 'New Reg' arrangement Australia has experimented with (described here), but it could also hint at a greater interest in control of retail prices.

"Investigate the threshold at which local lines companies can invest in generation assets" - my days of looking at requests for cross-sector involvements under the Electricity Industry Reform Act are long past, but insofar as I remember any of it, why not.

"Require the electricity regulator to implement regulations such that there is sufficient electricity infrastructure to ensure security of supply and avoid excessive prices" - seems reasonable, especially with the looming challenge of provisioning electric vehicles.

"Examine transmission and connection pricing to facilitate cost effective connection of new renewable generation resources, both on-shore and off-shore" - can't argue with that either, while hoping that it doesn't degenerate into the usual "you pay", "no, you pay" buckpassing.

"Require Medsafe to approve new pharmaceuticals within 30 days of them being approved by at least two overseas regulatory agencies recognised by New Zealand" (also word for word in the ACT coalition agreement) - as I understand it, a policy win for the New Zealand Initiative and/or its chief economist Eric Crampton, and wholly sensible. One of the bigger impediments across areas as diverse as building materials and medicines is the potentially anti-competitive barrier of unnecessarily high, or expensive, 'health and safety' non-tariff barriers, and we could usefully dismantle quite a few of them. In general we should efficiently free-ride on other respectable countries' testing or experience: I've always liked the idea, for example, of using overseas prices for telco services as a first sighting shot on what the local regulated price should be. Along similar lines National's 100 point plan had as number 32, "Strengthen competition for building materials with automatic approval for appropriately certified building materials from the US, Europe, the UK and Australia".

"Better recognise people with overseas medical qualifications and experience for accreditation in New Zealand" - same again. Unnecessary 'credentialism' and conveniently incumbent professional licencing 'gatekeepers' need to have their wings clipped. Same sentiment in the ACT agreement with its "Better recognise people with overseas medical qualifications and experience for accreditation in New Zealand including consideration of an occupations tribunal".

Turning to the ACT agreement:

"Legislate to improve the quality of regulation, ensuring that regulatory decisions are based on principles of good law-making and economic efficiency, by passing the Regulatory Standards Act as soon as practicable" - applehood and mother pie, and who'd disagree. Whether it would extend as far as a rethink of say Part IV of the Commerce Act, where I've always felt there may be less heavy duty alternatives to our rate of return regulation, we'll have to wait and see. And while it might be implicitly tucked into that "economic efficiency" reference, I'd like to see an explicit criterion in any eventual Act that would require any proposed regulation to be assessed for its impact on competition and consumer choice.

"Establish a new government department, required to assess the quality of new and existing legislation and regulation, funded by disestablishing the Productivity Commission and consolidating some regulatory quality work across the public sector where appropriate" - the country has not gone into mourning over the demise of the Productivity Commission (though as the productivity challenge hasn't gone away I personally would like to see something resurrected along the solid lines of the UK's Productivity Institute), and if the money is used to fund better regulation, why not. 

"In consultation with the relevant Minister, carry out regulation sector reviews, which could include the primary industries, the finance sector, early childhood education, and healthcare occupational licencing, in each case producing an omnibus bill for regulatory reform of laws affecting the sector" - a broad agenda which could encompass not just the benighted CCCFA (coming up next) but also ComCom's payments system regulation. Note too yet another welcome reference to tackling potentially overprotective professional qualification regimes.

"Rewrite the Credit Contracts and Consumer Finance Act 2003 to protect vulnerable consumers without unnecessarily limiting access to credit" (which also featured in the National Party's 100 point plan as number 48, "Cut financial red tape that is stifling investment, including significantly reducing the scope of the CCCFA which has restricted access to credit") - pretty much everyone accepts that successive tinkering with the CCCFA hasn't left us in a good place. Well-meaning attempts to protect the vulnerable ended up with lenders emptying people's waste baskets looking for receipts for Netflix subscriptions.

"Amend the Overseas Investment Act 2005 to limit ministerial decision making to national security concerns and make such decision making more timely" - completely reasonable. We already have one of the more restrictive overseas investment approval regimes by OECD standards, as shown in the graph below, and we need to lighten up if (among other things) we want another supermarket entrant or we want to attract some of the vast global pool of private equity money that's currently sloshing around looking for infrastructure opportunities (in particular for decarbonisation). We don't need any repeats of a Minister telling an overseas pension fund that they can't take a stake in a New Zealand airport. In the National Party's 100 point plan, they had as number 66 a very specific reason for liberalisation, "Amend the Overseas Investment Act and Income Tax Act to give investors certainty to invest in Build-to-Rent projects", which has since made it into the government's 100 day action plan, but hopefully the Overseas Investment Act will be freed up to benefit a wide variety of potential investors.

"Reform market studies introduced by the Commerce Amendment Act 2018 to focus on reducing regulatory barriers to new entrants to drive competition" - I can't say I like the look of this, for various reasons. For one thing, it's too early to be tinkering with a regime that's still new. More importantly, it looks as if it might be intended to limit the scope of future market studies solely to reducing regulatory barriers, which would be a mistake. There will be instances (such as the petrol stations) where the big competition issues are primarily ones of market power, not regulatory barriers, and the Commission shouldn't be barred from looking at them. It's arguable that the threshold test - "in the public interest" - for the Commission in s50 or the Minister in s51 to kick off a market study is too broad, but it's better than a threshold test that would be too narrow. On a more charitable reading, perhaps the "reform" will require the Commission to make sure that it uncovers all regulatory barriers in a study, but on the other hand they've been doing that quite well already (eg the thicket of resource consent, land planning and Overseas Investment Act hurdles to new supermarkets), so unfortunately the more uncharitable reading of an overrestrictive rollback looks the way to bet at the moment.

"Immediately issue stop-work notices on several workstreams, including Three Waters (with assets returned to council ownership)" - the 100 day action plan includes "Repeal Labour’s Three Waters legislation", so that's underway as a first step. What happens after that? National's 100 point plan had included (as number 68) "Restore council ownership and control of water assets, with strict rules for water quality and investment requirements" and (as number 69 in a welcome pinpointing of the current dynamic inefficiency debacle) "Introduce a requirement for water service delivery models to be financially sustainable, so that future generations don’t inherit outdated or failing infrastructure". Perhaps that can all be done under the remit of the current Water Services Economic Efficiency and Consumer Protection Act 2023, which installed ComCom as a sectoral regulator very much along the lines of its role as an electricity lines regulator (and which I'd presciently argued here was likely to be a better plan than Three Waters). Whether that will be timely enough - there's a rather leisurely timeframe in the Act for introducing regulation - or effective enough remains to be seen. ComCom can set investment paths, but with something like $150 billion worth of overdue maintenance to be paid for, it's still (however much you might like to stick it to councils for their previous pusillanimous water mismanagement) not obvious that they're in a financial position to pay for it.

Finally, there was a chance that a more business-friendly, deregulatory government might be minded to roll back some of the features of our existing competition regime. But nothing's been unwound, so that's something. On the other hand nothing's been advanced, either, even though the Commerce Act is now looking a bit shopworn. Understandably the negotiators had bigger things on their minds.

If I've missed anything, let me know and I'll happily update.

Here we go again

On August 23 the Aussie Treasurer Dr Jim Chalmers in a joint release with the Assistant Minister for Competition Dr Andrew Leigh announced a new competition review. It's meant to be a rolling rather than a one-off process - "A Competition Taskforce has been established in Treasury to conduct the review, which will be progressed over two years and involve targeted public consultation. It will provide continuous advice rather than a formal report" - assisted by an expert advisory panel including luminaries like the CEO of the Grattan Institute Danielle Wood and ex ACCC chair Rod Sims. Some initial topics have already been identified, including the ACCC's wish list for merger reform (which you can find here) and the prevalence of non-compete clauses in employment contracts.

I'd liked the pro-competition song Andrew Leigh has been singing when I heard him take to the mike at this year's RBB Economics conference: "All good stuff", I'd said, but in a rare moment of prescience I'd added, "whether the rest of the Albanese government shares Andrew's vision of being "pro-growth progressives" remains to be seen".

It's still unclear.  In July Aussie Transport Minister Catherine King decided not to allow Qatar Airways to operate more international flights. The competition review announcement had talked of building on "the Albanese Government’s existing efforts to boost competition" and tackling "cost of living pressures": King's decision, favouring a powerful and highly profitable incumbent, and helping maintain expensive air fares, didn't sit comfortably with either of those aspirations. In slight mitigation, the flight approval system King inherited is a rusty regulatory relic: governments should have been backed out of decision regimes like these years ago.

It didn't help that the ACCC hit the newly protected darling Qantas with a false, misleading or deceptive conduct lawsuit alleging that Qantas had advertised some 8,000 flights for sale that it knew it had already cancelled (press release here, concise statement of claim here). The ACCC chair Gina Cass-Gottlieb is gunning for an all-time-record fine of the order of quarter of a billion big ones. It's only allegation at this stage, but the reputational damage has hit home: as Qantas said on September 4, "The ACCC’s allegations come at a time when Qantas’ reputation has already been hit hard on several fronts", and the Qantas CEO decided to leave two months early. The Aussie government wasn't to know what lay down the pike, but with hindsight I'd guess it is now wondering why it risked supporting an unpopular corporate against the interests of the flying public.

We shouldn't gloat too much on this side of the Tasman when Aussie policies don't line up in a neat row: pots and kettles, for starters, and in any event our interests are best served by having a prosperous well-functioning polity next door, so let's get back to the nuts and bolts of competition policy. 

When I saw the announcement, I wondered why the Aussies were having yet another review - they seem to be on a regular 10-year cycle with the Hilmer review in 1993, the Dawson review in 2003, the Harper review in 2013, and now this one. My first reaction was that they risked a makework reinvention of the wheel - Harper seems like it was only yesterday - but on thinking a bit more about it, maybe they're right. A good example - it cropped up several times at this year's CLPINZ conference - is what, if anything, needs to be addressed if collaborative ventures between otherwise competing businesses are needed to transition to decarbonisation, as they might well be. It's become a more urgent issue now than it was back in Harper's day, partly because in the interim, too little has been done, on both sides of the Tasman, to make enough progress towards our international global warming commitments.

The Aussie "let's have another rethink" approach contrasts with our more piecemeal approach to the Commerce Act. We haven't stood still: within the Act itself, off the top of my head I can think of the new prohibition against anti-competitive grocery covenants in s28A, the change to s36, the provisions in ss48 through 51E on market studies, and the introduction of the whole of the Part IV regulatory apparatus, and outside of the Act we've introduced rafts of ancillary competition-relevant legislation (most recently the Fuel Industry Act 2020, the Grocery Industry Competition Act 2023, and the Retail Payments Act 2022, on top of earlier dairy, electricity and telco legislation). Put that way, the case pretty much makes itself for a reasoned review in the round of where we've got to, how it all works together (or doesn't), and what remains to be done. 

And if we're minded to have a high altitude rethink, I for one wouldn't be averse to a free ride on the Aussies' coattails if they improve their regime to meet the latest challenges. Yes, we're not them, and they're not us, but a lot of the problems are common. We could have saved ourselves several years of expensive navel-gazing if, day one, we'd simply pirated their post-Harper revision of their competition law to deal better to abuse of market power. If they come up with any more bright ideas in the next couple of years let's steal those, too.

CLPINZ 2023

 After a rapid scramble to reorganise the schedule following the last minute loss of the planned keynote speaker, the 34th annual workshop of the Competition Law and Policy Institute of New Zealand (CLPINZ) successfully got underway in Wellington over the weekend.

Top of the bill - promoted at short notice from the previously planned 'fireside chat' session, and very much appreciated for their willingness to step up and help out - were Commerce Commission chair John Small, on 'The future of antitrust', and Andy Matthews of Matthews Law as commentator. CLPINZ chair Anna Ryan of Lane Neave chaired the session.

John Small and his chosen topics; Andy Matthews commenting

John noted a swing in the intellectual competition policy pendulum, with a strong trend of more regulation for competition which had started twenty years ago with the Telco Act and has more recently extended to petrol, groceries and retail payment systems: on petrol, he noted that there were some retail "issues", a conclusion you'd tend to agree with after reading the latest quarterly petrol market monitoring report. He signalled that there is likely to be more ComCom activity against restrictive practices, an area which he accepted had been underdone to date, with the likes of retail price maintenance, anti-competitive covenants, cartels - the leniency programme is still "ticking away" - and in the fulness of time the revised s36 provisions against abuse of market power likely to see more playtime. He said that the NZ merger guidelines were due for review in any event, and noted that they're also a hot issue in other jurisdictions (notably in the US and Australia). And he put some emphasis on how ComCom plans to engage with its various stakeholders: "efficiency-based playing nice", as he put it, preferably relying on soft power (such as guidelines) and on "direct, respectful engagement", and avoiding litigation if possible, but going there if ultimately necessary.

Andy agreed that there had been a pronounced trend towards regulation for competition since around 2001 when there had been a "Big Bang" away from the previous reliance on light-handed, or no, regulation, and there could be a big payoff from the latest regulatory initiative, on consumer data rights, which could make competition in banking, for example, more effective. He also agreed with John's view that consumer law can be effectively used to complement competition policy, with for example significantly higher Fair Trading Act penalties over time providing a stronger incentive to be more consumer-friendly. And although the zeitgeist has moved to more hands-on interventionist competition policy, Andy reminded us that (a) the new and globally high-profile FTC/DoJ guidelines are just that, guidelines, and don't change the underlying law, and (b) regulation is all very well, but the first best option is always likely to be more effective competition, as we notably saw when a third mobile telco rolled out its gear.

Session 2 was "The most environmentally friendly carbon neutral CLPINZ session ever! Or is it?". In other words, the currently controversial area of "greenwashing", making misleading claims about the greenness of a business's products, activities, positioning or performance. The speaker was Charlotte Turner, senior associate, climate risk governance with MinterEllison in Melbourne, commentator was Kirsten Mannix, acting general manager - fair trading at ComCom, chair Bradley Aburn from Russell McVeagh. Charlotte referenced a web-scraping survey of the increased prevalence of green-focused claims, Kirsten referenced another which found an alarmingly high (~40%) proportion of potentially misleading claims. It's self-evidently an area with the potential to bite careless people: that said, as Charlotte said, the fundamentals haven't changed, and there are still well-established tests for 'deceptive' and 'misleading' even if the field they're being applied in is relatively new. And as Kirsten reminded us, one of the established principles is that 'intention' is not the point: being misleading will always put you on the wrong side of the law. You may well have read ComCom's own 'Environmental Claims Guidelines: a guide for traders', but might also like to follow up on some references Charlotte provided that originated with ASIC, the Aussie financial markets regulator: 'How to avoid greenwashing when offering or promoting sustainability-related products', and 'REP 763 ASIC’s recent greenwashing interventions'.

Session 3, 'Section 36: What can we learn from the Australian experience?', gave us incisive insights into how our s36, now amended to be in line with Australia's equivalent s46, will go in trying to deal to abuse of market power, given that our previous formulation of the law had proved ineffective. Chaired by Jennifer Hambleton,  it featured two very good speakers - Simon Muys from Gilbert + Tobin in Melbourne and Ed Willis from the University of Otago - and even though the 10 cases commenced under the new law in Australia have yet to go the full legal distance, and in some cases are still cantering towards the first fence, we got good ideas on what we might reasonably expect here. While some (including me) had hoped we might have got to a simpler place, compared to the counterfactual complexities of our old s36, both speakers agreed that litigating the new s36 will not be any simpler, just different (though, thankfully, more intellectually coherent). Establishing anti-competitive purpose, and establishing anti-competitive effect, will remain tricky, which is a bit of a disappointment to those of us who had hoped the Australian 'effects based test' would cut through more easily to the chase, and market definition looks to be at least as  crucial as previously. 

Simon Muys (L) and Ed Willis (R) reflect on the jurisprudence around abuse of market power

Session 4 was 'The Next Gen' session, a new CLPINZ idea aimed at showcasing some of the talent coming through the younger ranks of the competition and regulation community, and was chaired by NERA's Will Taylor. Left to right below, we got Sophie Vinicombe, solicitor at Russell McVeagh, talking about Ticketmaster antitrust claims in the US (what looks in retrospect to have been a very poor merger clearance); Sophie Harker, senior solicitor at Chapman Tripp on collaborating with competitors in emergencies like Covid; Luke Archer, principal investigator, Commerce Commission, on competition and sustainability; and Jono Henderson, consultant, NERA, on self-preferencing in digital markets (eg when a Google search throws up Google-associated products ahead of others'). All good topics, all well handled, and (going by people's reactions and the discussion at the CLPINZ AGM) I'd guess a 'Next Gen' session is going to be an ongoing feature of future workshops.

Session 5, 'AI and Collusion: Unveiling the Challenges of Tomorrow', featured a bright idea by chair Ben Hamlin: have AI (in the form of ChatGPT) write both the blurb for the session and the biography of the speaker, James Every-Palmer, which ended up crediting James with everything short of the Nobel Prize in Economics (not to downplay his real achievements: let's hat-tip his involvement in the Lawyers for Climate Action NZ win in the High Court, forcing the government to roll back its poor plan to paper the country with cheap emission trading scheme credits). James was surely right to argue that there is a long list of potentially anti-competitive concerns, not only over facilitated collusive conduct, such as tacit algorithmic price-formation, but also over unilateral conduct (including predatory conduct, and anti-competitive tying and bundling) and further issues across a variety of non-price dimensions including quality and privacy. Me, I'm a tech optimist, and inclined to believe the benefits of modern platforms in aggregate far outweigh their downsides, but you have to expect that some of the powerful incumbents will from time to time push their luck too far.

And finally Session 6, 'Aotearoa New Zealand's Turning Point - Competition and Consumer Policy Implications', chaired by moi, featured Mayuresh Prasad from Deloitte Access Economics in Wellington. Mayuresh gets a big thank-you for stepping in at literally days' notice to fill the gap in the programme after John Small and Andy Matthews moved to the keynote slot. He showed us, first, some modelling of the costs and benefits of what we need to do to keep temperatures rising by no more than 1.5 degrees. In the graph below there's a period where we incur costs to put in place policies like carbon taxes and spend on new renewable energy (and hence our GDP on the green 'do something' track falls below our GDP on the orange 'do nothing' track). After a period - the 'turning point' of his title - we pull ahead of where we would have been otherwise, and Mayuresh put numbers on the initial costs and ultimate payoffs. The costs, for mine, looked a bit on the low side, but otherwise his modelling fits with other attempts along these lines which also show that we can indeed have our cake (a greener sustainable world) and eat it (have a higher standard of living). And secondly Mayuresh explored some of the competition and regulation policy implications, notably around facilitating the necessary collaboration for good stuff to happen, and in particular giving certainty early in the piece as to what is or is not permissible, as we don't have a lot of time to waste.