For the first time since the new "substantial lessening of competition test" became law, the Commerce Commission ("the Commission") has declined an application for clearance in relation to a merger.
In its application, Progressive argued that the merger of its stores with those owned by Woolworths (NZ) Limited would not substantially lessen competition in any market. In its submission to the Commission, Foodstuffs (Auckland) Limited (represented by Phillips Fox and Jim Farmer QC) disagreed saying that:
The relevant markets were geographic markets for the supply of products from supermarkets with a radius of approximately 5km. The merger would result in significant increases in market share in a number of these markets, particularly in the Auckland region.These markets were roughly divided into two segments, these being: full service stores (for example, New World) and discount (for example, Pak N' Save). The loss of competition between Foodtown and Woolworths stores who compete in the full service segment was particularly significant. Economic theory indicates that, in markets certain characteristics, the reduction of players in a market from 3 to 2 is likely to lead to price increases in the long run. This is because such a reduction makes tacit collusion more likely. Barriers to entry to the relevant markets were high, meaning that a new player was unlikely to enter in a meaningful time frame. The decision to decline the Progressive application under the new test is particularly significant because its application was previously granted under the old "dominance" test. The decision lays to rest any argument
that there is little difference between the two competition tests.
In addition, the Progressive decision is consistent with decisions by the regulatory bodies in both Australia and the United States.
The Commission's written decision is due out in December 2002.
This article is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely
on this article.
Copyright Phillips Fox, December 2001
For further information please contact corporate partner, Martin Wiseman,
E-mail: martin.wiseman@phillipsfox.com
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