June 1, 2007

The Shaky Foundations of Competition Law

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The Shaky Foundations of Competition Law examines the theoretical basis of competition law with specific references to the New Zealand Commerce Act. It is believed that markets left to their own devices, without any regulation of prices, quantities, or structure, could (in some cases) be harmful to consumers. This view rests on the idea that competition is a state of affairs that must be regulated and managed by the authorities because undesirable situations can emerge all the time. The purpose of the paper is threefold: (a) to show that the Commerce Act rests on a mistaken view of competition; (b) to explain the nature of (true) competition, and (c) to expose the real face of competition law by showing that it cannot achieve the aim it is supposed to achieve. At the end of the day, the problem assumed by competition law is only exacerbated by regulation. While competition law aims to protect consumers, the danger is that it may affect the self-correcting properties of the market system-an outcome worse than the disease it tries to cure.