This is the second part in the Commerce Amendment (Promoting Competition and Other Matters) Bill (Bill)series.
This article examines the proposed amendments to the substantial lessening of competition (SLC) test, which is used in Parts 2 and 3 of the Commerce Act (Act) to assess competition impacts in anticompetitive agreements and covenants, and misuse of market power and merger control. The SLC test replaced tests that focused on the creation/strengthening (merger control) and taking advantage (misuse of market power) of market power in the Act in 2001 and 2023, respectively.
Problem definition
The proposed amendment to the SLC test forms part of a wider suite of amendments aimed at addressing concerns about the merger regime. The proposed amendments to the merger control regime are examined in greater detail in this article , but given the importance of the SLC test, and the broad impact of the proposed amendment beyond mergers, it warrants its own discussion.
The Regulatory Impact Statement (RIS) and the relevant Cabinet Paper do not so much as set out a problem with the SLC test, so much as suggest that the current test needs to be clarified to better deal with so-called ’killer acquisitions’; that is, acquisitions of nascent competitors that prevent them from evolving into significant rivals.
Outside of merger control, no concerns about the operation of the SLC test in relation to anticompetitive conduct have been identified.
The proposed amendment
The Bill would introduce a new section 3(2A) into the Act as follows:
”To avoid doubt, substantially lessening competition in a market may include creating, strengthening, or entrenching a substantial degree of power in the market”.
This, the Cabinet Paper says, will ”confirm” that the Commission is able to consider killer acquisitions. The proposed amendment ”does not introduce new powers for the Commission” and guidance will be developed (presumably by the Commission) to reduce uncertainty.
The proposed amendment is in line with the upcoming change to the SLC test in Australia’s Competition and Consumer Act (CCA), which takes effect from 1 July 2026. The stated intent of the amendment in Australia is similar, in that it is intended as an “elucidation” of the ways that an SLC may arise, rather than an expansion of its meaning.
The difference between New Zealand and Australia, though, is that the proposed amendment in New Zealand would apply not just to mergers, but to restrictive trade practices as well. It would include the test for misuse of a substantial degree of market power (including in trans-Tasman markets), the general prohibition on anticompetitive contracts, arrangements and understandings (agreements) and anticompetitive land covenants.
Assessing the proposed amendment
Merger control
The materials accompanying the Bill do not identify a ’problem’ that needs solving, but rather a view that being more explicit about how an SLC could arise would be beneficial in helping the Commission to tackle killer acquisitions.
However, there is little to suggest that the Commission considers it is unable to fully deal with acquisitions of small, nascent competitors. In fact, there is significant evidence to the contrary.
The Ministry of Business, Innovation and Employment’s December 2024 Discussion Document acknowledges that ”[t]he Commission has successfully blocked mergers involving nascent (i.e., potential future) competition, such as Woolworths and Foodstuffs proposed acquisition of the Warehouse in the grocery sector”.
To those mergers I would also add a more recent one. In 2021 the Commission considered Trade Me’s application for clearance to acquire PropertyNZ Limited. PropertyNZ operated the Homes website, a real estate listing platform that competed with Trade Me’s own, much larger, platform. While the Commission ultimately decided to grant clearance, the assessment went to a Statement of Unresolved Issues (SOUI). Here is how the Commission summarised its concerns in the SOUI (at [9.2]):
”Trade Me likely holds significant market power in the listings market. Homes growth would make it a significant competitor to Trade Me in the listings market. The Proposed Acquisition would eliminate that potential competition and raise barriers to entry, and this will have a flow-on effect of reducing competition in the audience market as a result of network effects.”
That is, the Commission was concerned about Trade Me strengthening/entrenching its market power as the result of acquiring a smaller competitor that may grow to become a significant rival. Ultimately the Commission was satisfied that Homes was unlikely to, in fact, grow into a significant competitor to Trade Me in the counterfactual, but its analysis clearly shows a capacity to address killer acquisition-type concerns where they arise.
I recently asked the Commission, for the past five years, how many business acquisitions it considered the SLC test was incapable of applying to due to the size of the market share increment involved. The Commission responded ”zero” and added that its position is:
”section 47 applies (i.e. is ’capable’ of applying) as a matter of law to all acquisitions of assets or shares, regardless of the market share increment involved.”
Other conduct
None of the materials accompanying the Bill have identified concerns to be addressed by amending the SLC test as it applies in other parts of the Act. Where the Australian government initially flagged this as a possibility, it contained changes to the merger test after strong opposition.
The focus of the SLC test is the effect of conduct on competition. As applied, it asks ’when compared with the counterfactual, is competition (likely) substantially lessened?’ Measuring the effect of conduct on competition is the proper focus of competition analysis.
While the new provision is a ’removal of doubt’ clause, it still provides that a creation, strengthening or entrenchment of substantial degree of market power (SDMP) can be an SLC. In my view, there is a risk that these words shift the focus away from the effect on competition and back onto market structure – something that competition law has moved away from (here and overseas). Further, and more concerning, is the potential for the provision to be interpreted as any creation, entrenchment or strengthening of SDMP being capable of giving rise to an SLC. This risks over-capturing pro-competitive or competitively benign conduct such as introducing innovative new products.
Without a clear basis for changing the wording of the law – even for clarificatory reasons – there seems little justification for change and a risk of unintended consequences. It would also mean our law is out of alignment with Australia’s, something that the materials accompanying the Bill appear to view as a good thing.
If you would like to discuss any aspect of what has been covered in this article, please get in touch.
