A short guide to competition law
In this guide:
This guide outlines some of the key elements of New Zealand’s competition law. It's designed to help you protect yourself, your employees and your business. We also have a range of user-friendly fact sheets which explain more on each of these key elements.
The following things are illegal.
- Any agreement between competitors that sets the price of goods or services or interferes with how the price of goods or services is set. This is known as price fixing.
- Any agreement between businesses that substantially lessens competition in a market.
- Any business taking advantage of market power for an anti-competitive purpose.
- Any merger between businesses that substantially lessens competition in a market.
These rules help ensure that businesses and consumers benefit from effective competition, which drives more innovation, lower prices, greater choice or better quality.
Any agreement between competing businesses that fixes a price or interferes with how the price of goods or services is set — including market sharing, bid rigging, allocating customers, and restricting output — is illegal. These sorts of agreements are sometimes known as cartels. Price fixing includes fixing any component of a price, like rebates or discounts.
It is still illegal if there is no formal written agreement — an understanding between two competitors about how one (or both) of them will act is enough. Even a 'nod and a wink' between parties can be evidence of an understanding.
You can read more in our Price fixing and cartels fact sheet.
Joint ventures that meet certain conditions are exempt from the price fixing rule. Businesses should seek legal advice if they believe an agreement may be exempt. Even if joint ventures are exempt from the price fixing rule, they are still subject to the rule against agreements that substantially lessen competition. However, in some circumstances, a joint venture arrangement where competitors have agreed to fix prices may actually have a positive effect on competition.
You can read more in our Exemptions under the Commerce Act fact sheet.
Think carefully about who you are, or may be, in competition with.
Competitors include any potential competitors — businesses that could choose to compete in a market even if they are not currently doing so. For example, a residential building company that currently only operates in the North Island could choose to compete in the Christchurch or wider South island markets; any South Island residential building companies should consider this business to be a potential competitor.
If you or one of your employees has been involved in a price fixing agreement with a competitor, you can apply to us under our leniency policy for immunity from legal action.
You can read more in our leniency policy.
Agreements between businesses are a normal and essential part of how markets work. But some agreements harm competition, which can mean higher prices, less choice and lower quality for customers.
Agreements between businesses that have the purpose, effect or likely effect of substantially lessening competition in a market are illegal. This includes formal and informal agreements, agreements between competitors, and agreements between suppliers and customers.
It is illegal both to reach an anti-competitive agreement and to put such an agreement into effect. Even attempting to come to such an agreement can break the law.
A lessening of competition often results in higher prices or reduced quality in a market. When assessing whether an agreement might substantially lessen competition, we look at whether the agreement has increased the ability of market participants to raise prices above competitive levels. A substantial lessening of competition is likely to have occurred if the parties to the agreement are able to maintain these price levels for a sustained period of time, and still remain profitable.
The decrease in the level of competition resulting from the agreement must be substantial, meaning it must be real or of substance, and not just a slight decrease. A cartel or price-fixing agreement is automatically assumed to result in a substantial lessening of competition.
It doesn't matter whether an agreement is deliberately anti-competitive or not; if it substantially lessens competition in a market, it will be illegal.
You can read more in our Agreements that substantially lessen competition fact sheet.
Another important element relates to businesses taking advantage of market power. It is illegal for any business with a substantial degree of market power to take advantage of that power for an anti-competitive purpose. A business might take advantage of its substantial market power to drive a competitor out of business, stop a new competitor from starting up, or stop rival businesses from competing effectively.
You can read more in our Taking advantage of market power fact sheet.
Mergers can bring many benefits to the economy by making it possible for businesses to be more efficient and innovative. But some mergers can harm competition by giving the merged businesses market power, which could result in higher prices and reduced choice or quality for consumers. Under the Commerce Act, we have a role to play in preventing anti-competitive mergers from going ahead.
When considering a proposed merger, we must decide whether the competition that is lost in a market when two businesses merge is substantial. We will give clearance to a proposed merger only if we are satisfied that the merger is unlikely to have the effect of substantially lessening competition in a market.
You can read more in our Mergers and Acquisitions - Merger Assessment fact sheet.
There are heavy penalties for breaching the Commerce Act — up to $10 million for companies and up to $500,000 for individuals per breach — as well as the cost of court action and reputational damage. Businesses are also responsible for the conduct of their employees, so it is important to ensure that all key personnel understand their obligations under the Commerce Act.
Please note that the information provided here is guidance only and should not be used instead of legal advice. If you are unsure about what your business needs to do to comply with the Commerce Act, you should seek your own legal advice.