Competition Policy

Hoyts has applied to the Commerce Commission for clearance to acquire the business and assets of Berkeley cinemas. Berkeley operates a few cinemas in Auckland and so does Hoyts. There are a number of other competitors in Auckland including Village, Rialto and some independent cinemas. The application claims that the acquisition will not substantially lessen competition in any market because:

• There are a large number of competitors already in the market and the merged entity will face intense competition from them.
• Barriers to entry and expansion are low; a cinema is a commodity.
• Consumers are highly price sensitive and also sensitive to quality differences.
• There is a significant competitive threat from alternative forms of entertainment.
• Film studios and distributors have countervailing market power.
• The merged entity will be better able to fund the costs of converting its cinemas to digital technology.

I made this graph today showing the number of merger and acquisition applications to the New Zealand Commerce Commission.

Over the past ten years there has been a reasonably steady level of applications of about 20 per year, except for the big drop in 2009. Since in a recession there should be as much or more demand for mergers than usual, this suggests that most of the applications in the recent past were for acquisitions rather than mergers. I also wonder what was the driver of the high level of applications in the early 90s.