Call to give consumer watchdog more teeth

04:20, Jun 05 2014

Competition law should be overhauled to boost the productivity of the "underperforming" services sector, the Productivity Commission says.

The changes it recommends include giving the Commerce Commission new powers to conduct wide-ranging inquiries into any market.

The Productivity Commission said in a final report on the sector published today that services accounted for nearly three-quarters of New Zealand's economic activity, but productivity growth had fallen behind that in the United States and Europe.

"Services in New Zealand have tended to underperform," commission chairman Murray Sherwin said.

The commission found that weak competition in the small New Zealand market was part of the problem, but it was optimistic the increased uptake of cloud computing could help firms cut costs and boost productivity.

Its final report beefed up recommendations in a draft report it issued in January.


The Productivity Commission came off the fence and said the Commerce Commission should be given the authority to undertake "broad-ranging inquiries into the state of competition" in any market.

At the moment, the competition watchdog has the power to undertake such studies only with respect to the telecommunications industry.

Air New Zealand was among companies that argued against that change.

The Productivity Commission said in its draft report that the costs and benefits of market studies would need "careful assessment", but its final report concluded that the benefits were likely to outweigh the costs.

The Productivity Commission also stuck by its call for a review of section 36 of the Commerce Act. Section 36 is designed to stop companies taking advantage of their market power to stymie competition, but Commerce Commission chairman Mark Berry says it has been rendered largely ineffectual by judicial interpretations.

The commission has been voicing concerns since it lost a 2010 Supreme Court case against Telecom over the telecommunications company's decision to force competitors to use an "0867" prefix for dial-up internet calls in 1999.

The commission had argued that the tactic was anti-competitive, but Telecom said the prefix removed a perverse incentive for internet providers to tie up its landlines with unnecessary calls to pocket interconnection fees.

The case established that the relevant legal test was whether a company accused of acting anti-competitively might have had good cause to act the same way in a properly functioning market.

But the Commerce Commission has claimed it is too easy for market-abusing firms to construct such a defence.

The Productivity Commission said it believed there were "real and valid concerns with how the current law and jurisprudence on section 36 are operating".

Commerce Minister Craig Foss said the Government had received the Productivity Commission's report and would consider it.

Berry said today that the Commerce Commission had concerns about the logic of section 36 and would welcome "any kind of review", though it did not have fixed views on what should replace it.

"I don't think anyone has got a model provision. It is a difficult thing to get right, but we think there needs to be a properly informed debate," he said.

Berry said he was "neutral" about the Productivity Commission's suggestion that it get extra powers to conduct market studies.

"In a number of other jurisdictions, competition authorities like us have got those market-survey powers," he said.

"They are potentially useful. If we are granted those powers, we would certainly take that on board."