How to Identify and Address Market Power Misuse

Business Update |  Brought to you in conjunction with The Commerce Commission

Understanding and addressing the misuse of market power is essential for maintaining a competitive business environment. By staying informed, businesses can protect themselves and ensure everyone benefits from a more competitive market. We recently sat down with Ellen Thomson, Principal Advisor at the Commerce Commission, to discuss how the misuse of market power can impact small and medium-sized businesses in Canterbury.

What is the misuse of market power?

Competitive markets encourage businesses to innovate to offer consumers greater choice and better prices or quality. That’s why we have laws to protect competition in New Zealand. When a business holds substantial market power, it may be able to damage the competitive process if it can significantly restrict or hinder the ability of its rivals to compete. We call this the misuse of market power. If your business is struggling to compete because of the actions of a powerful business, those actions could be illegal.

What is substantial market power?

We use the term ‘substantial market power’ to describe a business that is very powerful in any given market. We consider a business to have substantial market power if it can increase prices or reduce the quality of its products and services without losing too many customers to competitors.

Why is this issue important for SMEs?

The misuse of market power might be designed to create significant barriers for smaller businesses wanting to enter new markets, expand operations and achieve growth. For consumers, it can lead to higher prices, reduced choices, and stifled innovation.

What are some common behaviours that might be illegal if a business has substantial market power?

There are several things to watch out for:

• Refusal to supply your business with an important product or service that you need to compete.
• Charging high prices for an input that you need so that you can’t compete profitably in a market.
• Selling a product or service only when it’s tied or bundled with another, so you can’t match with the offer and customers can’t replicate the offer by buying the products separately. 
• Reducing prices below the cost of operating over a long period, or at strategic times, so you can’t compete on price.
• Exclusive contracts with customers or suppliers of critical inputs so you can’t access the products, services, or customers you need to compete.

If these actions are making it difficult for you to compete, they might be illegal.

Can businesses compete strongly without breaking the law?

Yes. It’s not illegal to have market power or to compete strongly by offering low prices or better services. The key is not to engage in behaviour that substantially harms competition.

When is harm to competition illegal?

Harm to competition must be substantial to be illegal.

It might not be substantial if the behaviour is short-term, only affects a small number of competitors, or is frustrating but doesn't impact your overall ability to compete.

What resources are available for businesses to understand and report misuse of market power?

We have resources to help small and medium-sized businesses identify illegal conduct on our website here. We’ve included examples and animations to help businesses understand different types of conduct.

Why have you developed these resources?

We receive quite a few complaints that demonstrate businesses don’t necessarily understand the law. It’s really important for SMEs to recognise the actions that could be considered illegal and to tell us if they think they’ve been affected by the misuse of market power.

What should a business owner do if they suspect illegal behaviour?

Gather as much evidence as you can and report your concerns to the Commerce Commission here.

What actions can the Commerce Commission take?

The Commerce Commission can investigate potential breaches of the law. If we think the law’s been breached, we can take parties to court.

We receive thousands of enquiries every year, and while we assess everything that we receive, we can’t investigate everything.

In determining what to prioritise, we consider our published Enforcement Criteria.

Businesses can learn more about cartels and other types of anti-competitive behaviour on our website here.