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UBC Theses and Dissertations

Vertical restraints in the distribution process under New Zealand competition law Moorman, David Guy

Abstract

The law relating to vertical restraints in the distribution process has sparked probably more controversy than any other area of competition law over the last 20 years. The debate has been fought out most fiercely between economists of various ideological schools invoking arguments of the importance of economic efficiency versus the need to protect small businesses and the freedom of sellers to choose their own methods of distribution. This has generated an extensive body of literature particularly in the United States. Surprisingly little however has been written in Australia or New Zealand on this subject. This thesis attempts to fill the void, although, in so doing, it does not seek to delve into the technical and complex aspects of law and economics in this area. Rather, it seeks merely to raise the basic issues in the New Zealand context from which base a more sophisticated study can subsequently be undertaken. By way of introduction, the nature of vertical restraints in the distribution process are described and some background is provided to the areas of debate. The thesis then breaks up into two parts to examine the current state of the law in the United States, Canada, Australia and New Zealand in respect of, first, vertical price restraints and, second, vertical non-price restraints. Where appropriate, a comparative analysis is made to shed light on the interpretation of key words and phrases in the New Zealand legislation. In respect of each type of restraint, the basic economic issues involved are then canvassed, given the strategic role which economics plays in understanding why vertical restraints are imposed and their competitive effects. Thereafter, various legal and policy issues are discussed to assist in deciding upon the appropriate legal treatment of each type of restraint. Finally, an attempt is made to provide an analytically coherent framework within which to judge vertical restraints in the context of present competition policy. The conclusions reached call into question the present total prohibition against resale price maintenace in New Zealand and advocate the need for more specific provisions regarding both price and non-price vertical restraints. In particular, it is suggested that a rule of per se illegality should only operate for conduct which attempts to fix, maintain or control the price at which products are resold, while a structured rule of reason should operate for all other types of vertical restraints based on a market power test administered in accordance with guidelines promulgated by the Commerce Commission.

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