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Kingsbury, Anna --- "Competition, Collaboration or Control: Competition Law and Tertiary Education in New Zealand" [2000] WkoLawRw 3; (2000) 8 Waikato Law Review 41


COMPETITION, COLLABORATION OR CONTROL: COMPETITION LAW AND TERTIARY EDUCATION

IN NEW ZEALAND

BY ANNA KINGSBURY[*]

I. INTRODUCTION

New Zealand’s tertiary education law and policy are undergoing a conceptual shift. During 1990-1999, policy was focused on the creation of an increasingly competitive environment for tertiary education provision. Tertiary providers, both public and private, were encouraged to compete for resources and for students. Government regulation was light-handed, and market disciplines were employed to encourage efficiencies. The Education Act 1989, as amended by the Education Amendment Act 1990, provided for the establishment and disestablishment of public institutions, and for their systems of governance. Provision was also made for private providers.[1] Competition law and policy was applied to the sector by the action of the Commerce Act 1986, and the Commerce Commission played a regulatory role accordingly.

However, since the end of 1999, the government has signalled a shift away from the competitive model. The government is seeking an agreed nationwide plan for tertiary education provision, and an environment in which providers collaborate rather than compete. The tertiary education sector has welcomed this shift cautiously until more detail is known. Work is continuing on how the policy should be implemented.[2]

To date, there has been little debate about the future role of competition law and policy within the new tertiary education environment. However, the reforms raise significant questions about the future application of the Commerce Act 1986 in the tertiary education sector, and about the future role of the Commerce Commission as regulator.

This article examines the application of the Commerce Act 1986 to tertiary education in New Zealand, focusing particularly on the significant potential application of the Commerce Act provisions to collaborative arrangements between tertiary providers. The article argues that there is a conceptual and practical incompatibility between existing competition law and policy and the government’s new tertiary education policy, and concludes by proposing possible alternative approaches.

II. THE CONTEXT: TERTIARY EDUCATION

LAW AND POLICY IN NEW ZEALAND

The Education Amendment Act 1990 created a new environment for tertiary institutions and providers.[3] New Zealand’s reforms were broadly similar to those undertaken throughout the OECD after 1985,[4] through which “higher education systems were structured as quasi-markets guided by government”.[5] Commonly, these reforms remodelled tertiary education institutions using a corporate structure, headed by a chief executive, and with professional, partly entrepreneurial, managers. The government provided a framework within which relatively autonomous institutions could interact and compete. The government’s regulatory approach was light-handed, using various mechanisms to shape both institutional management and the nature of institutional outputs.

In New Zealand, Part XIV of the Education Act 1989 as amended created a new regulatory regime for the sector, with the stated object of giving institutions:

...as much independence and freedom to make academic, operational, and management decisions as is consistent with the nature of the services they provide, the efficient use of national resources, the national interest, and the demands of accountability.[6]

The Act’s provisions aimed to balance the dual goals of institutional autonomy and efficient use of national resources through a regime that combined central control with decentralised authority.

The Act’s provisions provide for the establishment and disestablishment of four categories of tertiary institution, being colleges of education, polytechnics, universities, and wananga. They provide that each institution is established as a body corporate,[7] governed by a Council that appoints a chief executive, prepares a charter and statement of objectives (in negotiation with the Secretary of Education), and ensures that the institution is managed accordingly.[8]

Provision is also made for private providers, establishing a process whereby these providers can apply to the New Zealand Qualifications Authority for registration, and become eligible for government funding.[9]

Institutions also operate within a broader legislative framework aimed at achieving accountability and efficiency. Thus, institutions are subject to the Public Finance Act 1989; and the Commerce Act 1986, with its goal of economic efficiency, applies.

In allocating funding to tertiary institutions, the government has used an increasingly competitive model. Institutions compete for students and accompanying government funding for teaching, and from 2000 private providers compete for students, and accompanying funding, on generally equal terms with public institutions.[10] Institutions also compete for research funding from both public and private sources.

Thus, New Zealand’s tertiary education sector has been redesigned, and to an extent competition has been used in an effort to improve allocative and productive efficiency and increase customer focus and responsiveness to student needs. Institutions compete for students on the basis of the quality of their educational services and prices charged. The government funds courses according to student demand, rather than according to what the government perceives to be the needs of the nation and employers.

The reforms have had a considerable effect in the sector. Providers have taken a more competitive approach to student recruitment, running expensive promotional campaigns. New providers have emerged. Three wananga have been established as institutions.[11] Existing institutions have extended their activities into new markets, for example polytechnics have offered a range of degrees, and universities have extended their activities into subjects not traditionally associated with universities, such as tourism and leisure studies. Many universities, polytechnics, and other institutions have entered new geographical markets. Institutions have become increasingly entrepreneurial, and there has been a level of innovation, particularly among non-university institutions, that would not have been possible under the former regulatory framework.

However, there are questions about the effectiveness of the competitive model in achieving its objectives of productive and allocative efficiency. There is evidence that tertiary education markets are imperfect. There are information failures in the tertiary education market which market mechanisms are unlikely to resolve.[12] Prospective students are not well positioned to assess the quality of a course before they commence. Further, tertiary education tends to be a one-off purchase so that the purchaser cannot make a better-informed decision next time around.[13] Because of the high search costs involved, students are more likely to choose an institution with an established reputation or brand, such as one of the older universities, irrespective of quality. As a result, demand is greater at the established institutions, and newer institutions face a high barrier to entry with considerable sunk costs associated with establishing a reputation. The established institutions, and especially the universities, have benefited from the new competitive model. Their existing reputations, capital and resources have allowed them to dominate the quasi-markets for degree students. And the established universities have also been more successful in attracting research funding.

The regulatory protection of the title “university” has also been a considerable benefit to those institutions carrying it, and its absence has been a considerable disadvantage to those institutions without it.[14] Regulatory protection of the title operates as an insurmountable barrier to entry for potential competitors at the elite end of the market.

There is also some evidence that competition has reduced diversity, as institutions have each responded to the same incentive structure and tended to compete in the same range of courses, where barriers to entry are low (for example, where professional accreditation is not required) and sunk costs are minimal (for example, in expensive equipment and library material). Thus, there has been exponential growth in the number of business courses being offered, by both universities and polytechnics.[15] Business courses (other than accounting) do not require professional accreditation (compared, for example, with law), and sunk costs in the form of equipment and library material are less than in some fields, such as engineering. Such growth is, of course, also a response to student demand, as the perceived individual positional benefits of business courses are high, relative to the costs and time involved. Such growth achieves allocative efficiency in response to student demand, but without reference to demand by employers.

Thus, while the existing policy and legislative framework for the tertiary sector has made some progress toward the Education Act’s goal of efficiency in use of national resources, it is also arguable that better use could be made of those resources.

In recent statements, the Associate Minister of Education (Tertiary Education) has signalled a more interventionist approach by the government:

New Zealand is a small country. We need to make best use of our resources to ensure that the appropriate mix of quality tertiary education and skills training is available throughout the country. The Government wants to build a coherent tertiary education system where each institution is encouraged to play to its strengths according to an agreed nationwide plan. ... The Government is clearly signalling that we want to be an active and careful steward of our public tertiary institutions.[16]

The government is presently reviewing the strategic direction of tertiary education, and in 2000 it established the Tertiary Education Advisory Commission. The Commission’s Terms of Reference state that New Zealand needs “a more co-operative and collaborative education sector”.[17] The Commission has also been asked to provide advice on, inter alia:

− how the opportunities for increased collaboration and co-operation across the sector can be maximised, and how the links with the wider economy and community can be strengthened;
− how tertiary providers and students can be best positioned to provide and participate in courses of study that complement New Zealand’s social, economic and regional needs...[18]

There has been no suggestion by the government that competition policy should no longer apply to the tertiary education sector. However, there is a conflict between government’s signalled more collaborative and co-operative approach, and the application of competition policy via the Commerce Act 1986.

Part III of this article considers the competition law and policy implications of tertiary providers adopting a co-operative and collaborative approach.

III. CO-OPERATION, COLLABORATION AND THE COMMERCE ACT 1986

1. Introduction

The Commerce Act 1986[19] is the legislative basis for New Zealand’s competition law and policy. By its long title, it is an “Act to promote competition in markets within New Zealand...”. Like other competition or antitrust legislation internationally, its purpose is to ensure that the disciplines of a market economy are not undermined by the aggregation of economic power, or by monopolistic or anti-competitive trade practices. According to Richardson J, the Act:

is based on the premise that society’s resources are best allocated in a competitive market where rivalry between firms ensures maximum efficiency in the use of resources.[20]

The Commerce Act therefore promotes and protects competition. It does not protect individual competitors, except incidentally.[21]

To this end, the Commerce Act prohibits, and establishes a regime of penalties and remedies for, a range of anticompetitive behaviours. It also establishes the Commerce Commission with roles in investigation, enforcement, and decision-making. The Commission is empowered to investigate possible contraventions and institute proceedings in the High Court. It may authorise certain restrictive trade practices and grant clearances and authorisations for business acquisitions.[22] It is required to have regard to Government economic policies.[23]

The Commerce Act 1986 applies to both public tertiary institutions[24] and private providers, at least in so far as they engage in trade.[25] Section 43 provides that the Commerce Act does not apply in respect of any act, matter, or thing that is, or is of a kind, specifically authorised by any enactment or Order in Council made under any Act. There is no such general authorising provision for the tertiary education sector.[26]

To date the tertiary education sector has received little attention from competition lawyers and regulators,[27] and there appears to be limited awareness of the operation of the Commerce Act within the sector. However, tertiary providers need to be aware of the effect of the Commerce Act provisions, and all the more so in an environment in which collaboration between competitors is encouraged.

2. The Commerce Act 1986: Fundamental Concepts

(a) The concept of competition:

In the Commerce Act, “‘competition’ means workable or effective competition”.[28] The judicial approach to competition is that it is:

a mechanism for discovery of market information and for enforcement of business decisions in the light of this information ... competition expresses itself as rivalrous market behaviour.[29]

In analysing competition and market power the courts take into account elements of market structure:

(1) the number and size distribution of independent sellers, especially the degree of market concentration;
(2) the height of the barriers to entry, that is the ease with which new firms may enter and secure a viable market;
(3) the extent to which the products of the industry are characterised by extreme product differentiation and sales promotion;
(4) the character of “vertical relationships” with customers and with suppliers and the extent of vertical integration;
(5) the nature of any formal, stable and fundamental arrangements between firms which restrict their ability to function as independent entities; and
(6) behaviour in the market.[30]

In assessing competition, courts may take account of potential as well as actual competition.[31] Further, competition includes competition from “goods or services supplied or likely to be supplied by persons not resident or not carrying on business in New Zealand”.[32] In tertiary education, courts might therefore consider competition or potential competition from tertiary providers not based in New Zealand, and without a status as New Zealand institutions or providers under the Education Act 1989. This might include providers of tertiary offerings over the internet, or off-shore providers with articulation agreements with New Zealand providers.

(b) The concept of markets:

Competition takes place in a market, and assessing competition requires a definition of the relevant market. “Market” is therefore an instrumental concept, a tool for analysis of competition and market power.[33]

The Commerce Act defines “market” as:

a market in New Zealand for goods or services as well as goods or services that, as a matter of fact and commercial common sense, are substitutable for them.[34]

A market is:

the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive.[35]

Market definition is a question of fact and degree in each case.[36] A market is generally regarded as having dimensions of product, functional level, space and time.[37] An exercise in defining a market involves consideration of each of these factors.[38]

Thus, in defining a tertiary education market, consideration would be given to each dimension in so far as this is relevant. For example, in the Commerce Commission determination granting a clearance to Massey University to acquire Auckland College of Education, the Commission considered each of these dimensions. It concluded that there were three separate relevant product markets, being programmes of study leading to primary school, secondary school and in-service teaching qualifications. The Commission further concluded that the geographic market was the greater Auckland area (including Northland). It did not consider the functional level dimension to be relevant on the facts.[39]

3. Commerce Act 1986 Part II: Restrictive Trade Practices

There is a wide range of scenarios in which collaboration between providers could give rise to liability.[40] These include:

- consortium purchasing of materials or equipment;

- consortium contracts for access to library information, such as databases;

- collaboration in the use of information technology, for example, to supply materials and education to students;

- agreements between providers about which courses will be offered by each provider; for example, agreeing that only two institutions will offer a particular course, one in the north and one in the south, or agreeing that each member of a group of providers will offer one of a range of popular courses (that is, product or territory allocation agreements);

- agreements between providers (the government might also be a party) about what fees will be charged for particular courses of study;

- agreements limiting the number of students in a particular course nation-wide (that is, output agreements);

- agreements about the level of financial assistance that will be offered to particular students;

- agreements between providers and particular professional groups in relation to provision of qualifications for entry to those professional groups;

- requirements, systems and procedures for accreditation and peer review;

- collaboration between providers and sports organisations providing elite training facilities and competitions;

- agreements with businesses providing goods and services on campus, such as bookshops; and

- joint ventures for research and development.

Part II prohibits a range of anticompetitive conduct. The more blatant anti-competitive activities are prohibited per se; that is, they are prohibited without any need to show that the particular conduct has the purpose or effect of substantially lessening competition in a market. The per se offences are exclusionary provisions (section 29), horizontal price fixing (section 30) and resale price maintenance (sections 37-38). There is also a general prohibition section (section 27) which adopts a rule of reason approach, prohibiting contracts, arrangements or understandings that have the purpose, effect, or likely effect of substantially lessening competition in a market. Use of a dominant position in a market for anti-competitive purposes is proscribed under section 36.

Penalties for contravention of the restrictive trade practices’ provisions are up to $500,000 for individuals and up to $5 million in the case of a body corporate. Injunctions and actions for damages are also available remedies.[41]

The Commerce Commission may grant authorisation for conduct caught by sections 27, 29, 30, and by the resale price maintenance provisions. Use of a dominant position under section 36 is not authorisable.[42] The Commission shall not grant authorisation unless it is satisfied that the conduct in issue will result, or be likely to result, in a benefit to the public.[43]

The Commerce Act does not define “benefit to the public”, but in 1990 the Act was amended to add section 3A which provides that, in determining:

whether or not, or the extent to which, conduct will result, or will be likely to result, in a benefit to the public, the Commission shall have regard to any efficiencies that the Commission considers will result, or will be likely to result, from that conduct.

The Commission takes a net approach to assessing public benefit. It weighs the likely benefits against the likely detriments to determine the net public benefit.[44]

The Commission considers that a public benefit is any gain to the public of New Zealand, where any gain is measured in terms of economic efficiency. Likewise, a detriment is any loss to the public of New Zealand, measured also in economic efficiency terms. Thus, commonly claimed benefits include cost savings and enhanced profits.[45] Profits may be claimed as a public benefit, whether earned by New Zealanders or overseas investors.[46] There must be a causal nexus between the benefit claimed and the conduct or acquisition for which the authorisation is sought.[47]

Changes in the distribution of income, where one New Zealand group gains and another loses, are generally not considered.[48] Intangible benefits not capable of quantification can be considered, but they are rarely accorded significant weight.[49]

(a) The general prohibition section: section 27

Section 27 prohibits contracts, arrangements or understandings that have the purpose, effect, or likely effect of substantially lessening competition in a market. Establishing liability requires (i) a contract, arrangement or understanding, (ii) definition of the relevant market, and (iii) purpose, effect, or likely effect, of substantial lessening of competition within that market.

Thus, section 27 potentially catches a wide range of anti-competitive conduct, both horizontal and vertical.[50] The section requires that there is some duality of action in the form of either a formal contract or a more informal arrangement or understanding.[51] Attempts to reach a contract, arrangement or understanding are also caught.[52] A provision of the contract, arrangement or understanding will then be covered if it has the purpose, effect or likely effect, of substantially lessening competition within the market as defined.

In tertiary education, section 27 would catch a range of the kinds of collaborative conduct already discussed. It could, for example, apply to agreements about fees and assistance,[53] agreements giving exclusive rights to sell goods or services on campus,[54] agreements dividing up the market by not offering particular courses in competition, and to some forms of consortium buying.

(b) Price fixing: section 30

Horizontal price fixing is illegal per se. Under section 30, a provision of a contract, arrangement or understanding is deemed to have the purpose, effect or likely effect of substantially lessening competition for the purposes of section 27 if the provision “has or is likely to have the effect of fixing, controlling, maintaining, or providing for the fixing, controlling, or maintaining, of the price for goods or services, or any discount, allowance, rebate, or credit in relation to goods or services” that are supplied or acquired by the parties ... in competition with each other. Resupply is also covered.

In tertiary education, section 30 will potentially catch a range of agreements between providers, including:

- fixing maximum or minimum fees, discounts or rebates;

- creating a fee range;

- creating a fee or discount formula or system;

- controlling costs which contribute to prices; and

- fixing fees in the future.

Providers may share fee information,[55] but problems will arise where the sharing of information leads to a contract, arrangement or understanding about fees and prices to be charged.

Price-fixing provisions are authorisable, but the Commerce Commission rarely authorises minimum price provisions.

(c) Exclusionary provisions: section 29

Section 29 is intended to catch group boycotts or concerted refusals to deal.[56] Under section 29, an exclusionary provision is one where there is a contract, arrangement or understanding between two or more parties in competition with each other,

which has the purpose of preventing, restricting, or limiting the supply of goods or services to, or the acquisition of goods or services from any particular person or class of persons, where one of the parties is in competition with the particular person or class of persons who is the target.

In the tertiary education context, section 29 might be used to attack conduct by a group of providers who agree with a professional group to provide exclusively education leading to the entry qualifications for that professional group, and the professional group accredits the provider and agrees to exclude any other potential providers of the same educational services. However, such an agreement might be authorisable under section 58 if it could be shown that efficiencies would result.

Conduct that is not caught by section 29 might still fall under the broader provision of section 27, subject to the rule of reason approach.

(d) Use of a Dominant Position: section 36

Section 36 prohibits a person in a dominant position in a market from using that position for a proscribed purpose. The three elements of the provision are as follows:

(i) a person who has a dominant position in a market,
(ii) who has used that position,
(iii) for the purpose of restricting entry in a market, deterring competitive conduct in a market or eliminating a person from a market.[57]

Assessment of dominance first requires definition of the relevant market, and then consideration of dominance within that market.

Section 3(8) provides that:

a dominant position in a market is one in which a person as a supplier or an acquirer of goods or services either alone or together with any interconnected body corporate is in a position to exercise a dominant influence over the production, acquisition, supply, or price of goods or services in that market ...

The section further states that, for the purpose of determining dominance, regard shall be had to:

- market share, technical knowledge and access to materials or capital;
- the constraint exercised by competitors or potential competitors;
- the constraint exercised by suppliers or acquirers.

Dominance in a market:

involves more than “high” market power; more than mere ability to behave “largely” independently of competitors; and more than power to effect “appreciable” changes in terms of trading. It involves a high degree of market control.[58]

For section 36 to apply, a person in a dominant position must use that position for one of the proscribed anti-competitive purposes. According to the Privy Council in Telecom:

it cannot be said that a person in a dominant market position “uses” that position for the purposes of s 36 [if] he acts in a way which a person not in a dominant position but otherwise in the same circumstances would have acted.[59]

The third element is to show that the use was for one of the proscribed anti-competitive purposes as listed in section 36, in that or any other market. The purpose can be one of a number of purposes, so long as it is a substantial purpose.[60]

Potentially, a tertiary provider or consortium of providers could have a dominant position in a particular market, either as a supplier of goods and services or as an acquirer of goods and services.[61]

Examples of possible use of a dominant position might include:

- accreditation requirements imposed by established providers (possibly in conjunction with industry groups) where these are used to exclude new entrants;

- use by a university of its established position and resources to deter entry by a rival provider, for example by engaging in predatory pricing;

- non-recognition by larger institutions of courses offered by smaller providers, for example non-recognition of wananga undergraduate degrees so that those graduates could not then enter postgraduate study.

However, by no means all competitive conduct by dominant parties will be caught by section 36. There will be circumstances where conduct that is seriously detrimental to a smaller provider will be acceptable under the Commerce Act 1986. Competition law protects competition, not competitors.

Thus, for example, a small polytechnic may have one unique and popular course, the success of which is essential to the financial viability of the polytechnic. A university in the same region might choose to enter the market offering a similar course in competition, with the added perceived benefit to students of offering it as a university degree rather than as a polytechnic degree. It is unlikely that such conduct would contravene section 36, even though it may lead to the polytechnic being forced to close. Such an outcome might be contrary to the objectives of government education policy, but it would be acceptable in competition law terms.

(e) Resale price maintenance: sections 37 and 38

Sections 37 and 38 prohibit resale price maintenance by suppliers and third parties.[62] In simple terms, resale price maintenance is enforcing a minimum price for resale. Under section 37, a supplier may not induce a reseller to sell goods at or above a minimum price, or take or threaten to take punitive action if the reseller sells below that price. The provisions apply to goods only, not to services.

While the provisions are of some interest, they are not of primary importance in tertiary education. Tertiary providers are not ordinarily involved in supplying goods for resale. However, they may have some limited application, for example, in supplying course materials to a bookshop for resale.

4. Commerce Act 1986, Part III: Business Acquisitions

The provisions of Part III also apply to tertiary education providers.

The key provision is section 47, which prohibits any person from acquiring assets of a business or shares, if, as a result of the acquisition that person or another person would be, or would be likely to be, in a dominant position in a market, or that person’s or another person’s dominant position in a market would be, or would be likely to be, strengthened.[63]

Pecuniary penalties for contravening or attempting to contravene section 47 can be up to $500,000 for an individual and $5 million for a body corporate. Other remedies include injunctions, damages or divestiture of assets.[64]

Sections 66-69 in Part V make provision for acquirers to apply to the Commerce Commission for a clearance or authorisation, and thereby avoid the consequences of contravening section 47. The Commerce Commission will grant a clearance if it is satisfied that the acquisition will not give rise to dominance concerns as described in section 47.[65] Where dominance concerns do arise, the Commission may grant an authorisation if it is satisfied that the acquisition will result, or will be likely to result, in such a benefit to the public that it should be permitted.[66]

The Commerce Commission’s Business Acquisition Guidelines[67] describe the basis on which the Commission will consider proposed business acquisitions. The Commission will first define the market in relation to the dimensions of product/service, geographic extent, functional level, and, if necessary, time. It will then identify market participants and near entrants. Dominance or likely dominance is then assessed with reference to section 3(9) and case-law on dominance.[68]

The Commission’s Guidelines specify “safe harbours”, particular levels of market concentration which are incompatible with market dominance. In the Commission’s view, a dominant position is generally unlikely to be created or strengthened where, after the proposed acquisition, either of the following situations exist:

− the merged entity (including any interconnected or associated persons) has less than in the order of a 40 percent share of the relevant market;
− the merged entity (including any interconnected or associated persons) has less than in the order of a 60 percent share of the relevant market, and faces competition from at least one other market participant having no less than in the order of a 15 percent market share.[69]

Where a proposed acquisition falls outside these safe harbours, the Commission will consider a range of additional factors[70] in determining whether it will be likely to result in the acquisition or strengthening of a dominant position.[71] If the Commission determines that the proposed acquisition will be likely to result in the acquisition or strengthening of a dominant position, the acquirer may seek an authorisation on the basis that the acquisition will result, or will be likely to result, in such a benefit to the public that it should be permitted.

As previously discussed in relation to authorisation of restrictive trade practices, Commerce Commission assessment of public benefits and detriments has focused increasingly on economic efficiency. [72]

The provisions of Part III clearly apply to tertiary education providers, both public and private. There has been considerable merger activity in the tertiary sector in the last decade. Given the large number of providers, some of which are arguably too small to be viable in the present competitive environment, such activity is likely to increase.[73]

Where an acquisition may give rise to dominance in a market, the acquiring provider will need to seek clearance or authorisation from the Commerce Commission. Thus, Massey University sought and was granted a clearance to merge with Auckland College of Education in 1998.[74] The Commerce Commission also investigated the merger of Massey University and Wellington Polytechnic and decided that competition issues did not arise.[75]

Where dominance issues arise and a clearance is not available (for example, where the merged entity would clearly monopolise a market as defined), the acquiring provider will need to seek an authorisation, and establish that there is sufficient public benefit to justify the authorisation.

IV. CONCLUSION: ALTERNATIVE APPROACHES

The Commerce Act 1986 applies to tertiary education, although it has been little used and there is limited awareness of it within this sector. It is nevertheless an important element in the tertiary education regulatory framework, and it has a significant impact on the options available to participants in tertiary education markets.

It is clear from recent policy statements that the current government seeks a more planned approach to tertiary education provision, and an environment of co-operation and collaboration between providers. However, as has been demonstrated, the Commerce Act places significant limits on the options for collaboration between providers.

There is an apparent conceptual incompatibility between the government’s approach to regulating the tertiary education sector and competition law and policy. The government’s tertiary education policy and its competition policy arise from fundamentally different conceptual approaches to regulation. The Commerce Act is designed as a mechanism for the light-handed regulation of a market economy, and it is an Act “to promote competition in markets”.[76] It is not designed to regulate an economic sector in which the government has a strong central planning role, and in which market participants are encouraged to collaborate and co-operate.

It is therefore submitted that, if the government is committed to creating a more planned and collaborative environment for tertiary education, it will need to resolve the conflict with competition law. A number of approaches are possible.

1. Authorisation

The government could continue to apply competition policy to the tertiary sector. It could then rely on the authorisation process as a means to resolve the mismatch of policy objectives. The public benefit test could be broadened to include wider policy goals such as distributional effects, social equity, and regional development.

There are two difficulties here. The first is that the Commerce Commission’s approach to public benefit has increasingly been narrowly focused on economic efficiency, and it does not place significant weight on other goals. A major change to the public benefit test for one sector has potential impacts for competition law as a whole.

The second difficulty is that authorisation is not a cost-free process. It costs providers in Commission and professional fees and in staff time, and it creates uncertainty. It thus has the potential to act as a deterrent to collaborative initiatives and innovations.

2. Partial Exemptions from the Commerce Act

Collaborative initiatives might be facilitated by creating partial exemptions from the Commerce Act for particular specified activities. However, such an approach is likely to be problematic in practice, as it would be difficult to foresee all of the activities to be exempted and then draft the exemptions appropriately.

3. Full Exemption from the Commerce Act

Tertiary education could be fully exempted from the Commerce Act and brought under its own legislative framework within which elements of competition and collaboration were balanced in a manner appropriate to the sector.

It is arguable that competition policy unmodified is not an appropriate regulatory approach for apparently very imperfect tertiary education markets. If so, use of the Commerce Commission as a generic competition regulator is inappropriate, and a sector-specific regulator, such as an intermediary authority, may be more appropriate.

It is submitted that the most coherent solution would be the creation of such sector-specific legislation. This would require legislation which applies appropriate elements of competition law to prevent anti-competitive arrangements and the aggregation of market power, but which also encourages collaborative initiatives to enhance teaching, learning and research.


[*] Lecturer in Law, University of Waikato.

[1] Education Act 1989, Part XVIII: Private Training Establishments.

[2] Tertiary Education Advisory Commission: Te Ako Pae Tawhiti, Shaping a Shared Vision: Initial Report of the Tertiary Education Advisory Commission (July 2000).

[3] Before 1990, tertiary institutions were regulated through a variety of statutes and agencies. Each university had its own statute, and the University Grants Committee was responsible for funding decisions. Polytechnics and other providers were regulated by the Department of Education, which controlled courses and funding.

[4] For a useful discussion of the role and function of markets in education, see Marginson, S Markets in Education (1997), especially chapter 2, “A Political Economy of Education Markets”.

[5] Ibid, 222.

[6] Education Act 1989, s 160.

[7] Education Act 1989, s 166.

[8] Education Act 1989, s 180.

[9] Education Act 1989, Part XVIII.

[10] The clearest representation of the competitive funding model was presented in the Ministry of Education, White Paper: Tertiary Education Policy Directions for the 21st Century (1998) (which was never implemented in full). For further reference, see http://www.minedu.govt.nz/web/document/document_page.cfm?id=4715.

[11] Te Wananga o Raukawa, Te Wananga o Aotearoa, and Te Wananga o Awanuiarangi.

[12] Information failures were acknowledged in the Ministry of Education, White Paper supra note 10, at 1.2: “There is a recognised need for improved information so that students can make the judgement about which course and institution is best for the qualifications that they seek”.

[13] For a fuller discussion of these issues, see Cave, Dodsworth and Thompson, “Regulatory Reform in Higher Education in the UK: Incentives for Efficiency and Product Quality”, in Bishop, M et al (eds) The Regulatory Challenge (1995) 85.

[14] The title “university” is protected under the Education Act 1989, ss 264 and 292(4). Providers may use the term only with New Zealand Qualifications Authority approval, and institutions require Ministerial approval to become universities. Auckland Institute of Technology was successful in its request for conferral of university status in 1999. (See Auckland University of Technology (Establishment) Order 1999 (SR 1999/332) in force 1 January 2000). UNITEC also requested conferral of university status but in May 2000 the government stopped the process of consideration of UNITEC’s request, and placed a moratorium on further universities. On 15 May 2000, the Associate Education Minister (Tertiary Education) introduced the Education (Limiting Number of Universities) Amendment Bill restricting the number of public universities in New Zealand to eight. The Bill is still with the Select Committee. The Bill does not affect overseas universities offering education services within New Zealand.

[15] In 1996 there were 27 Bachelors’ and 24 Masters’ courses offered in Business, Commerce, Information Systems and Management. By 2000 there were 38 Bachelors’ and 35 Masters’ courses in the same subjects. See the New Zealand Qualifications Authority and New Zealand Vice-Chancellors Committee, Degree Qualifications in New Zealand: A User’s Guide (1996) and (2000). This proliferation of course offerings has also been dominated by the universities, which use their established reputations and university status to distinguish them from the potentially confusing plethora of competitors.

[16] Hon Steve Maharey, Associate Education Minister (Tertiary Education) “Government to place moratorium on further universities” Press Release 16 May 2000.

[17] TEAC Terms of Reference, in TEAC, Shaping a Shared Vision supra note 2, 32.

[18] Ibid, 33.

[19] There has been substantial recent criticism of the Act, and proposals for reform. However the criticism has mainly been that the Act is perceived as too weak, and it is likely that the direction of any reforms will be toward strengthening the substantive provisions of the Act, and increasing the penalties for breach. See Ministry of Commerce, Penalties, Remedies and Court Processes under the Commerce Act 1986: A Discussion Document (January 1998), Ministry of Commerce, Review of the Competition Thresholds in the Commerce Act 1986 and Related Issues: A Discussion Document (April 1999), and the Commerce Amendment Bill 1999 and Supplementary Order Papers. For further reference, and background information, attention is directed to http://www.executive.govt.nz/minister/mallard/commerce/index.html.

[20] Tru Tone Ltd and Others v Festival Records Retail Marketing Ltd [1988] NZCA 179; [1988] 2 NZLR 352, 358[1988] NZCA 179; , (1988) 2 NZBLC 103,286, 103,291.

[21] Union Shipping NZ Ltd v Port Nelson Ltd [1990] NZHC 61; [1990] 2 NZLR 662, 699-700 (HC).

[22] The functions and powers of the Commerce Commission are set out in Part I of the Commerce Act 1986.

[23] Commerce Act 1986, s 26.

[24] See Commerce Commission Media Release 1997/118: “Commission Chairman Alan Bollard said the Commission’s legal opinion is that tertiary institutions are in competition with each other for students, and they are not exempted from the Act by any other legislation”.

[25] Commerce Act 1986, s 5, providing that the Act shall bind the Crown in so far as the Crown engages in trade. There is ongoing uncertainty about whether and in what sense tertiary institutions are in fact Crown entities. See State Services Commission, Crown Entity Reform: Assignment of Crown Entities to Classes (25 August 2000), http://www.ssc.govt.nz/siteset.htm: “At this stage, no decision has been made about whether the legislative proposals will apply to Schools, Tertiary Education Institutions, Trusts, Reserves Boards, and Fish and Game Councils”. If tertiary education institutions are not “the Crown” for the purposes of s 5, then the Act applies in full.

[26] The Privy Council has taken a narrow view of this exception. See Apple Fields Ltd v New Zealand Apple and Pear Marketing Board [1991] 1 NZLR 257 (PC).

[27] There has been some consideration of Commerce Act issues in proposed mergers. See eg Commerce Commission Decision No 336, Massey University and Auckland College of Education (24 December 1998).

[28] Commerce Act 1986, s 3(1).

[29] Re Queensland & Co-Operative Milling Associates Ltd; Re Defiance (1976) 8 ALR 481, 514-515, followed in New Zealand in (inter alia) Tru Tone Ltd v Festival Records Records Marketing Ltd [1988] NZCA 179; [1988] 2 NZLR 352, and Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd [1987] NZHC 213; [1987] 2 NZLR 647.

[30] Ibid.

[31] Telecom v Commerce Commission [1992] NZCA 595; [1992] 3 NZLR 429, 439, Fisher & Paykel Ltd v Commerce Commission [1990] NZHC 307; [1990] 2 NZLR 731, 740-741.

[32] The Commerce Act 1986, s 3(3). Note that services supplied outside New Zealand by persons not resident or not carrying on business in New Zealand may not be taken into account. See New Zealand Magic Millions v Wrightson Bloodstock Ltd [1989] NZHC 887; [1990] 1 NZLR 731, 759. However this decision has been subject to criticism. See eg Brunt, “‘Market Definition’ Issues in Australian and New Zealand Trade Practices Litigation”, in Ahdar, R (ed) Competition Law and Policy in New Zealand (1991) 115, 142-144.

[33] Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Co. Ltd [1989] HCA 6; (1989) 83 ALR 577, 582, followed in New Zealand Magic Millions v Wrightson Bloodstock Ltd [1989] NZHC 887; [1990] 1 NZLR 731, 748-749.

[34] Commerce Act 1986, s 3(1A).

[35] Re Queensland & Co-Operative Milling Associates Ltd; Re Defiance (1976) 8 ALR 481, 517.

[36] Tru Tone Ltd v Festival Records Records Marketing Ltd [1988] NZCA 179; [1988] 2 NZLR 352, 358.

[37] Ibid, 359.

[38] See eg Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd [1987] NZHC 213; [1987] 2 NZLR 647, Tru Tone Ltd v Festival Records Records Marketing Ltd [1988] NZCA 179; [1988] 2 NZLR 352, and Hoyts Corporation Holdings Operations (NZ) Ltd v Commerce Commission [1991] NZHC 2126; (1991) 4 TCLR 459; [1992] NZAR 426.

[39] Commerce Commission Decision No 336, Massey University and Auckland College of Education, supra note 27, at 10-13.

[40] For the purposes of comparison, a review of the application of antitrust laws to tertiary education providers in the United States is in Richmond, “Antitrust and Higher Education: An Overview” 61 UMKC L Rev 417.

[41] Commerce Act 1986, ss 80-82. Note that, as with s 47, penalties and remedies apply not only to contraventions, but also to attempted contraventions, aiding, abetting, counselling, procuring, inducing or attempting to induce, conspiring, or being party to, a contravention.

[42] Commerce Act 1986, ss 58-65.

[43] Commerce Act 1986, s 61.

[44] Re Weddel Crown Corp Ltd (1987) 1 NZBLC (Com) 104,214. See also Ahdar, “The Authorisation Process and the ‘Public Benefit’ Test”, in Ahdar, supra note 32, at 217; and Pickford, Michael The Evaluation of Public Benefit and Detriment Under the Commerce Act (Commerce Commission Occasional Paper no 7, February 1998).

[45] Commerce Commission, Guidelines to the Analysis of Public Benefits and Detriments in the Context of the Commerce Act (October 1994), and Pickford, ibid.

[46] Telecom Corporation of NZ Ltd v Commerce Commission (1991) TCLR 473, 531.

[47] Pickford, supra note 44, at 18.

[48] Ibid, 4.

[49] Ibid, 4, 22-23.

[50] See generally Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd [1987] NZHC 213; [1987] 2 NZLR 647, Tui Foods Ltd v New Zealand Milk Corporation Ltd [1993] NZCA 364; [1993] 5 TCLR 406 (CA), Commerce Commission v Port Nelson Ltd (1995) 5 NZBLC 103,764, Port Nelson Ltd v Commerce Commission (1996) 5 NZBLC 104,142 (CA), and Fisher & Paykel Ltd v Commerce Commission [1990] NZHC 307; [1990] 2 NZLR 731.

[51] Re British Basic Slag Ltd’s Agreements [1962] 3 All ER 247, [1963] 2 All ER 807 (CA), Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd [1987] NZHC 213; [1987] 2 NZLR 647, New Zealand Apple and Pear Marketing Board v Apple Fields Ltd [1991] 1 NZLR 257 (PC), and Commerce Commission v Wellington Branch NZ Institute of Driving Instructors (1990) 4 TCLR 19.

[52] Commerce Act 1986, s 80(1)(b).

[53] See Commerce Commission v Wellington Branch NZ Institute of Driving Instructors (1990) 4 TCLR 19.

[54] See Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd [1987] NZHC 213; [1987] 2 NZLR 647.

[55] TPC v Email (1980) ATPR 40-172, Re NZ Medical Association (1988) 7 NZAR 407.

[56] Tui Foods Ltd v New Zealand Milk Corporation Ltd [1993] NZCA 364; [1993] 5 TCLR 406 (CA).

[57] Telecom Corporation of NZ Ltd v Clear Communications [1995] 1 NZLR 385, 402 (PC).

[58] The High Court test was adopted by the Court of Appeal in Port Nelson Ltd v Commerce Commission (1996) 5 NZBLC 104,142, 104,161 (CA).

[59] Telecom Corporation of NZ Ltd v Clear Communications [1995] 1 NZLR 385, 402 (PC).

[60] See Commerce Act 1986, s 2(5)(b).

[61] See Commerce Act 1986, s 29(1) and s3(8).

[62] See eg Commerce Commission v Hewlett Packard (1993) 5 TCLR 136, and Direct Holdings Ltd v Feltex Furnishings of NZ Ltd [1986] NZHC 192; (1986) 6 NZAR 245.

[63] Commerce Commission, Business Acquisitions Guidelines 1996 (revised March 1999).

[64] Commerce Act 1986, ss 83-85. Note that penalties and remedies apply not only to contraventions and attempted contraventions, but also to aiding, abetting, counselling, procuring, inducing or attempting to induce, conspiring, or being party to, a contravention.

[65] Commerce Act 1986, s 66.

[66] Commerce Act 1986, s 67.

[67] Supra note 63.

[68] As previously discussed in relation to use of a dominant position.

[69] Supra note 63, at 17.

[70] Additional factors include constraints from market entry and constraints from buyers and suppliers. See Commerce Act 1986, s 3(9), and supra note 63, at 19-21.

[71] Pickford, supra note 44, at 18.

[72] Note also that Commerce Act 1986, s 3A, applies, requiring the Commission, in considering public benefit, to have regard to efficiencies.

[73] See Ministry of Education, White Paper, supra note 10, 1.2: “Currently, New Zealand has seven universities [now eight], 25 polytechnics [now 23], four colleges of education, three wananga, 11 Government Training Establishments, and over 700 private training establishments. This is a high number of tertiary institutions for the size of our country, and they offer courses at widely different levels. A significant number of these institutions are either small or very small. The small size of a number of tertiary institutions has put question marks over their long-term educational and financial viability. Several institutions are working on alliances of various sorts, including, in some cases, full mergers, in order to strengthen their position”. An example is Wairarapa Community Polytechnic and UNICOL, based in Palmerston North.

[74] Commerce Commission Decision No 336, Massey University and Auckland College of Education (24 December 1998). Note however that such a merger would require approval and action by the Minister of Education, under section 164 of the Education Act 1989. Such approval has not so far been granted (“Tertiary Merger backers yet to win over Mallard” New Zealand Herald 20 September 2000).

[75] Commerce Commission, “Commerce Commission investigates tertiary education institution mergers” (Media Release 1997/118).

[76] Commerce Act 1986, Long Title.


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