An analysis of the practicality of using the public benefit test in business acquisitions and restrictive trade practices : a thesis presented in partial fulfilment of the requirements of the degree of Master of Applied Economics in Accounting at Massey University
The objective of this research was to examine the efficacy of the 'public benefit test' to authorise anti-competitive practices and acquisitions in New Zealand, as applied by the Commerce Commission, under the Commerce Act 1986. In particular, the study established whether, and to what extent, companies granted authorisation had successfully achieved the benefits claimed, in comparison to what might have been achieved without authorisation - the counterfactual. No such study has been performed in New Zealand, despite the potentially significant cost to society if anti-competitive acquisitions and trade practices are habitually unable to achieve benefits claimed. The approach adopted was to compare expectations of benefits held by the Commission and the applicants at the time of merger, with actual achievements. Actual results were also compared with the counterfactual. The case study approach was embraced to accomplish this as it permits an in-depth examination of the issues related to each determination. Questionnaires completed by company representatives of the firms granted authorisation were the primary source of information. Interviews were also held with company representatives to clarify outstanding issues. Nine authorisations were identified which met a set of criteria developed by the researcher, involving four industries: meat processing, dairy processing, gas, and telecommunications. One authorisation studied, involving Telecom and the cellphone services market, surpassed expectations of benefits resulting from authorisation, while another, involving a joint venture gas retailing operation in Hamilton, overestimated gains from merger, and thus, benefits have not been achieved. All other authorisations studied, fell somewhere in between these extremes. The major conclusion of this study appears to be that the Commerce Commission's ability to predict the size, magnitude, and probability of benefits being realised, is poor. This result is attributable to the multitude of factors affecting firms' operations, rather than an oversight by the Commission. In each of the four industries there have been major changes in market conditions, mostly attributable to deregulation, and ensuing competition. The poor predictability of the public benefit test brings into question its usefulness as a major competition policy tool. The major weakness of the public benefit test is its inability to provide an incentive for companies granted authorisation to ensure efficiency gains and other benefits are realised.