Assessment Overview
30. An overview of the Commission's assessment approach is provided in Chapter 4 (Assessment Approach).
31. The Commission, having determined that the goods or services are supplied in a market in which competition is limited (s 52(a)), considers s 52(b) which provides that goods or services may be controlled if control is necessary or desirable in the interests of acquirers. The Commission terms this the net acquirers benefit test (NAB test).
32. In applying the NAB test the Commission assesses the net benefit to acquirers of control (the factual) relative to the situation with no control (the counterfactual).
33. The NAB of control is estimated using the following approach:
- identifying the potential benefits of control;
- identifying the potential costs of control; and
- balancing one against the other.
34. The benefits to acquirers of control broadly emerge from reducing any excess returns or inefficiencies associated with the counterfactual (i.e. in the absence of control) less any costs of control. An analysis of company performance in the counterfactual compared to an efficiently operating market is used to measure the potential benefits of control.
35. The costs of control emerge in terms of compliance and administration costs for the business and the regulator (direct costs) and the control mechanism's effects on efficiency incentives (indirect costs).
36. If the Commission finds that there are net benefits to acquirers from control, then it may recommend control.
37. In recommending to the Minister whether control should be imposed, the Commission may have regard to all matters it considers necessary or desirable. The Commission considers the following additional matters relevant in deciding whether it should recommend control:
- the net efficiency cost to the economy of reducing excess returns;
- the size of NAB assessed in terms of the returns earned by the business and the impact of control on prices to consumers;
- the impact of recommending no control; and
- other qualitative considerations.
38. The Commission notes also that the Minister has a wider discretion than the Commission to consider other matters including alternative forms of regulation distinct from control under Part V.
39. In reaching its decisions on whether control may and should be imposed, the Commission has relied on quantitative analysis, using a model developed for this purpose, and qualitative analysis in developing the model and choosing relevant parameters. The model provides support to the Commission's deliberations. However, it does not substitute for the Commission's exercise of judgment in which it ensures that it has taken account of the cumulative effect of all relevant considerations.
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