1. The New Zealand Approach to Monopolisation, Mergers and Cartels An Address to the Taiwan Fair Trade Commission, Taipei, 22 February 2011 Dr Mark Berry Chair New Zealand Commerce Commission

2. Outline → Overview of the New Zealand Commerce Commission → Overview of our antitrust laws → Three matters corresponding to Chapter II of the Fair Trade Act 2010 (Taiwan): Monopolisation Mergers Cartels 2

3. New Zealand Commerce Commission → Growth of functions over time → Traditional antitrust and fair trading law functions under Commerce Act/Fair Trading Act (coupled with Credit Contracts and Consumer Finance Act) 3

4. New Zealand Commerce Commission (Continued) → Evolution of regulatory roles: Dairy (2001) Telecommunications (2001) Part 4 of the Commerce Act (relating to electricity and gas transmission and distribution services and information disclosure for airports) 4

5. New Zealand Commerce Commission Structure (excluding Organisation Performance Branch) 5 CommissionersCEOGM Competition Branch Management Staff General Counsel Chief Economist GM Regulation Branch Chief Economist General Counsel Management Staff

6. Overview of Antitrust Laws → Part II Commerce Act Catch-all provision prohibiting contracts, arrangements and understandings which substantially lessen competition (s 27) Price fixing per se unlawful (s 36) Monopolisation (s 36) RPM prohibited (s 37) → Part III Commerce Act Merger regime 6

7. Monopolisation → New Zealand (and Australia) are legislatively distinct → Section 36 – no firm with a substantial degree of market power may “take advantage” of that power for the purpose of preventing, deterring or excluding competition 7

8. Three Limbs to Section 36 → Substantial Degree of Market Power No safe harbours based on market shares Question for analysis in each case, based on market definition, barriers to entry and other factors associated with market power 8

9. Three Limbs to Section 36 (Continued) → Take Advantage Turning point as outlined further → Prohibited Purposes Based on direct evidence Can also be interred from conduct and circumstances 9

10. Taking Advantage → The sole counterfactual test (UK Privy Council) → Ask if the dominant firm would, or could rationally, have engaged in the conduct if it did not have substantial market power 10

11. Problems with Counterfactual Analysis → Hypothetical (and often uncertain) in nature → Problems in defining a hypothetical firm which does not possess a substantial degree of market power, but which is otherwise in the same circumstances as the dominant firm in question 11

12. Problems with Counterfactual Analysis (Continued) → Artificial in many circumstances – plus unilateral conduct may be of no concern (even pro- competitive) when engaged in by non-dominant firms, but may be harmful when engaged in by dominant firms 12

13. The Comparative Australian Position → The take advantage test has never been a sole counterfactual test → Use counterfactual analysis where it is cogent → Greater flexibility with alternate tests: “Materially facilitated” Was the dominant firm’s conduct materially facilitated or made easier by the existence of its market power “Deane J” Whether the purpose of the conduct could only be achieved by virtue of the firm’s substantial market power. 13

14. 0867 → In 0867 our Supreme Court had a simple choice → Either adopt Privy Council or High Court of Australia tests → Findings “The essential point is that if a dominant firm would, as a matter of commercial judgment, have acted in the same way in a hypothetically competitive market, it cannot logically be said that dominance has given it the advantage that is implied in the concepts of using or taking advantage of … market power”, and “It must be shown, on the balance of probabilities, that the firm in question would not have acted as it did in a workably competitive market.” 14

15. 0867 (Continued) → Above statements restate Privy Council test (even if called a “comparative test”) → Oblique references to “material facilitation” leave significant room for uncertainty → Mis-characterisation of harmony between Privy Council and High Court of Australia cases → Future for s 36 is unclear High cost litigation to discover boundaries of 0867 impact Legislative reform needed? 15

16. Mergers → Section 47 prohibits mergers that substantially lessen competition (SLC) → SLC test introduced in 2001 → Prior test was one of dominance (high degree of market power) → Now SLC intended to capture both unilateral and co-ordinated market power 16

17. Counterfactual Analysis → SLC test begs forward-looking counterfactual analysis Factual = the merger proposal Counterfactual = likely outcome without the merger → Assess effect of all likely counterfactuals → No inquiry into most likely counterfactual 17

18. Merger/Market Power Continuum Perfectxyz Competition FD Monopoly CF1CF2 D =dominance F =factual (under SLC test) CF1=counterfactual involving no increase in power CF2 =counterfactual involving increase in power 18

19. Merger Process Issues → Unlike Taiwan we have a voluntary notification regime → Application can be made for clearance or authorisation → Applications can be coupled with structural divestment undertakings (as opposed to behavioural undertakings) 19

20. Clearance Applications → Based solely on the SLC test → Formal application, followed by Commission investigation → Written reasons in each case → Statutory period of 10 working days, but routinely extended by agreement 20

21. Authorisation Applications → Parallel to Taiwanese grounds for merger assessment → If SLC (clearance) test not passed, then applicants can seek authorisation 21

22. Authorisation Applications (Continued) → Net benefit test: Detriments – focus on loss of allocative efficiency, loss of incentives to avoid waste, loss of product quality and loss of incentives to innovate Benefits – focus on efficiency gains, economies of scale and scope, better utilisation of capacity and cost savings 22

23. Enforcement Action → Injunction proceedings against non-notified mergers → Pecuniary penalties apply to contraventions of s 47 → Commission decisions subject to potential appeal, but only by merger participants 23

24. Cartels and Collusive Conduct → Section 27 - prohibits contracts, arrangements or understandings which substantially lessen competition → Section 30 – price fixing deemed per se unlawful (subject to certain exemptions including joint ventures and joint buying) → Criminalisation – under review 24

25. Trade Associations → Contracts, arrangements or understandings by any association or body of persons is deemed to have been entered into by all (s 2(8)) → Power to disassociate (s 2(9)) → Certain recommendations to more than 50 are exempt the per se rule (s 32) 25

26. Authorisation and Enforcement Issues → Price Fixing can be authorised (but no applications to date) → Options in how we approach price fixing: No action Compliance advice Public warning Prosecution → Move to additional outreach initiatives 26

27. Leniency → First mover seeks a “marker” for conditional immunity → Assessment whether to grant conditional immunity → Grant of marker to successful applicant → If no grant of marker, then this lapses and next marker is (if necessary) assessed for conditional immunity → Co-operation relevant in all cases for assessment of penalties (which can only be court imposed) 27

28. Concluding Remarks → An international dialogue on antitrust matters is important → Thank you for the opportunity to share my observations on key comparative matters under Taiwanese and New Zealand competition law 28