Compulsory Access to Essential Facilities under section 36 of the New Zealand Commerce Act in the Light of Experience in Australia, the EC and the USA

Abstract

There is concern in many jurisdictions that firms found to enjoysubstantial market power may be under a special responsibility to grant to their competitors access to essential facilities. Where a firm enjoying market power has some asset which a new entrant to a concentrated market must have or use it is tempting to say that the market would operate better if the new comer were entitled to access. On a static analysis this may be true - there will be one more firm in the market: probably more will be produced and sold at lower prices. On a dynamic analysis however it is important that the incentive to create the original asset be not reduced The reduction in the incentive to invest in other specific facilities in other industries may be more important than the static improvement in a particular market.I am concerned by the propensity of antitrust authorities to take the staticview and require access to be granted at a price at which the incumbent wouldprefer not to deal thereby reducing the incentive to the original investment. The particular investment will already have been made but if antitrust authorities frequently compel access for the benefit of free riders wishing to compete downstream the incentive to investment in facilities essential to other activities will be reduced. New Zealand competition law was inspired directly by that of Australia as part of the arrangements for the CER and in its turn the Australian trade practices legislation was largely inspired by the experience in the US and European Community.2Under s. 2 of the Sherman Act in the USA some of the cases went veryfar in finding that a firm with substantial market power was under a duty to grant access to essential facilities for the benefit of those wishing to compete with it downstream. Professor Areeda's seminal article `Essential Facilities: an Epithet in Need of Limiting Principles'3 has helped to stem the tide. Even where more than one person can conveniently use the facility there are objections to requiring access. An obligation to supply not only reduces the incentive to make the original investment it also reduces the incentive to duplicate or improve it where this would otherwise be sensible. Moreover some body will have to settle the amount of compensation to be paid often on a continuing basis.