Hits and misses – Government announces Commerce Act changes

In December 2024, the Ministry of Business Innovation and Employment announced a targeted review of the Commerce Act 1986. You can read our update "unwrapping" the scope of that review here. Now, the Government has announced the changes to the Act that it wishes to adopt, billed as part of its broader "Going for Growth" strategy. These changes come alongside a structural overhaul to the governance of the Commerce Commission.

While the devil will ultimately be in the detail, in this update, we explain what has been announced, and give our initial take on the proposed changes.

 

What's in and what's out?

Many of the Government's announcements were foreshadowed in MBIE's discussion document initiating the review. There were also some notable omissions, and a few that were not specifically consulted on at all.

What's in?

The announcements that were consulted on in the MBIE discussion document include:

• Clarifying the substantial lessening of competition test throughout the Act to include conduct "creating, strengthening or entrenching" a substantial degree of market power.
• Empowering the Commission to consider patterns of small acquisitions over a three-year period to address concerns regarding serial or creeping acquisitions. The cabinet paper refers specifically to the car parking sector where such patterns have been observed.
• New powers given to the Commission to accept behavioural undertakings in assessing mergers. This change is aimed at addressing scenarios where merger clearance may be declined despite the potential for workable remedies through behavioural conditions – a gap that has drawn attention in past cases. The cabinet paper refers specifically to the proposed 2016 Sky TV and Vodafone merger as an application for clearance that could have benefited from the Commission being able to accept behavioural undertakings.
• Empowering the Commission with new "call in" and "stay and hold" powers to require parties to seek clearance or suspend mergers that may give rise to a substantial lessening of competition.
• The ability for the Commission to recommend targeted regulation to guide conduct among market participants to break down barriers to entry and expansion in concentrated markets.
• Beefing up the confidentiality provisions of the Act with a view to increasing confidence for those dealing with the Commission.

The above announcements are in addition to those made by the Minister for Commerce in August, which related to reforms to support "beneficial collaboration". These included:

• A statutory notification regime to allow parties to notify the Commission of a proposed collaborative activity. If the Commission does not raise any concerns, the collaboration is deemed lawful for the duration of the notification. Importantly, however, these notifications will initially be limited to resale price maintenance and business collective bargaining.
• Class exemption powers to the Commission to exempt categories of conduct that are "low-risk or clearly beneficial".

What's out?

The announcements exclude possible options consulted on in the MBIE discussion document. Notable omissions include:

• No explicit prohibition on "concerted practices". The Regulatory Impact Statement referred to submissions that argued that such conduct is likely to be captured by the existing "understanding" threshold and could blur the line between illegal coordination and lawful and economically rational responses to market signals.
• No streamlined collaboration notification for sustainability collaborations. The discussion document specifically referred to collaboration between competitors for sustainability measures (such as industry arrangements to meet net zero targets) as an example of where the existing regime may deter collaboration. However, as noted, the newly announced statutory notification regime is currently geared towards resale price maintenance and collective bargaining only. Although, it is possible that the class exemption regime may extend to capture such collaboration.
• No mandatory notification regime for proposed mergers, either generally, or applying to specific companies or industries

What's new?

Somewhat out of left field, the Government is proposing to codify the test for establishing predatory pricing by a firm with substantial market power. Currently, this conduct is prohibited by the general misuse of market power provision in section 36 of the Act. This prohibits conduct that has the purpose or effect or likely effect of substantially lessening competition in any market.

The proposed regime looks to codify existing case law where proof of recoupment of strategic losses is not required to establish predatory pricing, and introduce the following "objective" test for firms with substantial market power:

• Pricing below Average Variable Cost (AVC) or Average Avoidable Cost (AAC) over a sustained period is presumptively unlawful.
• 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 costs) 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.

In addition to the above, the Cabinet Paper also clarifies that any new test is not intended to capture short-term promotional pricing (including one-off specials), de minimis discounts, or mistaken pricing – unless such conduct is part of a sustained pattern of pricing behaviour.

Further, the Government also announced clarifications on liability for the use of AI and algorithms. In what is intended to close a "potential loophole", the Commerce Act will be amended to ensure that conduct carried out using algorithms or AI on behalf of a person will be captured by the Act. The amendment would confirm that businesses remain responsible for such conduct – in the same way they are responsible for an employee or agent carrying out such conduct.

 

Our initial views – hits and misses

Hits

We support the ability for the Commission to accept behavioural undertakings when assessing mergers. This ability will provide a further tool to limit the risks to competition for some deals.

The proposed changes to the confidentiality regime are also welcome, on the basis that the regime will provide greater comfort for commercial parties providing sensitive information to the Commission.

We support efforts to make beneficial collaboration easier but are not sure if what has currently been proposed hits the mark. We explain below.

It is great that the Government has not gone down the route of a general mandatory merger notification regime. And, it is also positive that additional complexity has not been introduced by requiring mandatory notifications for certain companies or firms with market power.

The decision to not introduce a specific prohibition on concerted practices is a welcome recognition of the breadth of the existing law on contracts, arrangements or understandings between competitors.

The Government should be applauded for looking to future proof the regime by considering the implications of conduct facilitated by AI.

Misses

Predatory pricing is an issue that has vexed competition lawyers around the world for over a century. In our experience, context is everything and we would favour giving our new section 36 test time to bed-in and be applied to an appropriate predatory pricing case. Our concern with the proposed approach is that it risks shifting the focus of any enquiry away from any underlying competitive harm to a more rigid application of the statutory test. While the proposed "objective" test is a familiar one and generally reflects established law, it is telling that other jurisdictions have not attempted to codify predatory pricing rules, and indeed, Australia repealed its attempt to codify the test in 2017. As a minimum, the proposal would have benefited from consultation as part of MBIE's development of the reforms. In any case, we would expect it to be scrutinised carefully as part of the select committee process.

It is surprising that the statutory notification regime is limited to resale price maintenance and small business collective bargaining. Both the Cabinet Paper and the Regulatory Impact Statement of the proposals make no mention of this limitation. This is puzzling, given the MBIE discussion document, and Regulatory Impact Statement's emphasis on supporting beneficial collaboration for sustainability purposes.

Finally, we are not fans of introducing further industry specific regulation. As a matter of principle, we do not favour sector-specific competition laws, including those introduced via industry codes or rules. To the extent that there is a clear need for sector-specific regulation (for example, because there is a natural monopoly), this should be subject to the scrutiny of Parliament and the democratic process.

 

Time will tell…

Our sense is that the change to the substantial lessening of competition test to include conduct "creating, strengthening or entrenching" a substantial degree of market power will not materially alter the existing competition test.

In terms of the regulation of creeping or serial acquisitions, we were keen to see how the equivalent changes played out in Australia before any introduction to New Zealand. Private equity firms and other businesses with roll-up or consolidation strategies can expect a high degree of scrutiny once the changes come into effect.

Watch this space for further analysis on these topics…

 

What's next?

The Government has signalled that these changes are reflected in amendments to the Commerce Act that will be introduced to Parliament before Christmas and are intended to be passed by mid-2026. Once the Bill containing the changes is introduced and referred to select committee, there will be an opportunity to make further submissions. If you have any questions about how these changes may impact your business, please get in touch with one of our competition law experts.