Laws That Encourage Competition In The Marketplace: A Basic Guide

In New Zealand, the Commerce Commission (ComCom) regulates and promotes competition in the marketplace. Most laws aimed at encouraging competition in the marketplace seek to prevent anti-competitive behaviour. 

What Is Anti-Competitive Behaviour?

Anti-competitive behaviour can encompass a wide variety of behaviours in the marketplace, often influenced by the bargaining power of the entity. 

Some examples are anti-competitive conduct, cartels, collective bargaining and boycotting, misuse of market power, unconscionable conduct and enforcing minimum resale prices. 

In this article, we’ll look at some key examples of anti-competitive behaviour that small businesses should look out for.

Anti-Competitive Conduct

According to the Commerce Act 1986, anti-competitive behaviour is any contract, arrangement, understanding or concerted practice that has the purpose, effect, or likely substantial effect of lessening competition in a market.

Let’s break that down! 

A “contract, arrangement or understanding” does not have to be written down or even expressed verbally, and can be an understanding between two parties. Evidence of this understanding might be in the party’s conduct (e.g. their business practices). 

Concerted practice is less full on than an understanding, but is more than acting independently. For example, evidence of a pattern of two businesses collaborating or communicating together might amount to concerted practice. Concerted practices are obviously ok if it doesn’t result in anti competitive behaviour. 

Lastly, a market is an area of close competition between firms, while substantial is ‘meaningful or relevant to the competitive process’. 

Collective Bargaining And Boycotting

Collective bargaining is where two or more entities join forces to discuss T&Cs and prices with a customer or supplier. A collective boycott ties into this where the two or more entities who are negotiating together against the supplier or customer refuse to deal with them unless they agree to their terms. 

There are exceptions, for instance when small businesses face a power imbalance negotiating with bigger businesses and it is in smaller businesses interests to band together in negotiations. In these instances, collective bargaining is not illegal if the benefits to the public eclipse any damage to competition. Businesses should apply for authorisation from the ComCom if they want to be exempt.

Exclusive Dealing

Exclusive dealing is selling goods or services to another on the condition that the recipient must or must not use another supplier. 

For example, a couple wish to book a wedding reception venue named ‘Apple Tree Mountains’, but the venue will only allow their services to be booked if the couple also use a certain photographer of the venue’s choosing. The venue also will only allow it to be booked if the couple do not use a nearby competitor’s restaurant, ‘The View’ venue, for the ceremony to take place.

Exclusive dealing is not always against the law, only when it substantially lessens competition.

Suppliers And Resale Prices

Suppliers can’t try to force reselling businesses to charge a set price, including pressuring resellers to use the recommended retail price. But suppliers can decide not to sell to resellers who want to sell goods below their cost. 

Businesses might want to sell goods below their cost for promotions or to attract customers, known as ‘loss leader selling’. However, clearances, or when a business has informed the supplier that they intend to use loss leader selling, are exceptions.   

Cartels

A cartel is where two or more businesses collude rather than compete so as to increase profits. To do this, a cartel might fix prices, divide the market so they can share it without competition, limit the number of goods and services on the market, and rig bids (when suppliers discuss and come to agreement on who will win a bid, and at what price, before the bid takes place). 

Cartels are super illegal, both under civil law (you could face fines) and under criminal law (you could face imprisonment or community service). 

This is because of the huge ramifications of cartels on price increases in goods and services, and economic stagnation through preventing other businesses from participating in the economy, reducing investment, innovation and consumer confidence. 

The Takeaway

Unsure if you might be engaging in anti-competitive behaviour, or if you’ve been on the receiving end of it? Anti-competitive behaviour is not always black and white, and you may need legal advice from a lawyer experienced in dealing with the Commerce Commission. Feel free to get in contact with Sprintlaw on 0800 002 184 or at [email protected] to see if we can help you.

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