Mergers can bring many benefits to the New Zealand economy by making businesses more efficient and innovative. However, some mergers also have the potential to substantially lessen competition in the market to the detriment of consumers.
The Commission's role in mergers and acquisitions
The Commission administers a voluntary clearance regime for mergers and acquisitions but can also take enforcement action to prevent anti-competitive transactions from going ahead if prior clearance is not sought.
When considering a proposed merger, we can only give clearance if we are satisfied that the merger is unlikely to have the effect of substantially lessening competition in a market.
Our mergers and acquisitions guidelines give businesses in-depth information on the laws that govern our merger assessments, the economic and legal analysis we conduct, and the process we follow in making a decision.
We can also grant an authorisation for an acquisition that would result in a substantial lessening of competition, if the public benefits resulting from the acquisition are found to outweigh the competitive harm.
Substantial lessening of competition test
We assess mergers using the substantial lessening of competition test. This test examines whether a merger is likely to substantially lessen competition in a market, by comparing the likely state of competition if the merger proceeds with the likely state of competition if the merger does not proceed. A lessening of competition is generally the same as an increase in market power, which is the ability to raise prices and reduce the quality of goods and services that would exist if there was a competitive market.
By law, we can only clear a merger if we are satisfied that the merger would not be likely to substantially lessen competition in any New Zealand market. We will authorise a merger if we are satisfied that the merger would be likely to result in such a benefit to the public that it should be permitted even though it may substantially lessen competition.
If a business thinks that its proposed merger with a competitor might substantially lessen competition in a market, it should seek the Commission's approval for the merger to proceed before it happens. If it does not, the business risks the Commission, or others, taking enforcement action which can result in significant penalties or a Court reversing the merger.
Under the Commerce Act, certain agreements and mergers are prohibited as they can lead to anti-competitive outcomes, such as increased prices or lack of choice for consumers. However, the law allows the Commission to authorise anti-competitive agreements and mergers in some cases where the public benefits outweigh the competitive harms.