Pattrick Smellie: Consumer watchdog to get more investigative teeth

At the start of February, Energy Minister Judith Collins announced an inquiry into fuel margins in New Zealand, ...
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At the start of February, Energy Minister Judith Collins announced an inquiry into fuel margins in New Zealand, including whether profits overall were fair, as well as questions over significant price differences in each region.

OPINION: In some circles, competition is almost a dirty word: the apogee of the 'neo-liberal' drive to treat every aspect of human endeavour as an extension of the profit motive.

Then again, many of the same critics are equally ropeable when confronted with the possibility that businesses are stitching up markets between them so they can charge what they like.

That's the political opportunity scented by Energy Minister Judith Collins when she ordered an inquiry into the competitiveness in the transport fuels sector, due out early next week.

The notion that petrol stations are rorting motorists is a hardy perennial gripe. Expect ritual beatings, irrespective of the strength of the findings.

READ MORE:
Competition watchdog may be allowed to lift lid on markets that worry ministers
New Zealand's largest petrol company says margins are 'top of cycle'
 

In this case, the Ministry of Business, Innovation and Employment has conducted the inquiry, its powers of investigation only as strong as the cooperation of the participants.

Commerce Minister Jacqui Dean announced this week that the Commerce Commission will get powers to conduct formal 'market ...
SUPPLIED

Commerce Minister Jacqui Dean announced this week that the Commerce Commission will get powers to conduct formal 'market studies' in areas where there are competition concerns.

The Commerce Commission has somewhat greater powers. It can compel businesses to open their books for specific allegations.

For example, it investigated Fletcher Building-owned Winstone Wallboards in 2014 after global producer Knauf failed to find a market in New Zealand, where Winstone dominates.

However, the commission could not run an investigation into the whole of the building industry, which the OECD singled out as a source of low productivity and limited competitiveness in its latest report on the New Zealand economy

That is all about to change. Commerce Minister Jacqui Dean announced this week that the competition watchdog will get powers to conduct formal 'market studies' in areas where competition concerns are identified.

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Companies in the targeted sector will have no choice but to disclose their affairs to a degree normally reserved either for court cases or merger and acquisition applications.

In other words, while the words 'market study' sound innocuous enough, they will represent a significant increase in the power of the state to reach into the affairs of the private sector.

Pattrick Smellie: The notion that petrol stations are rorting motorists is a hardy perennial gripe, so expect ritual ...
SUPPLIED

Pattrick Smellie: The notion that petrol stations are rorting motorists is a hardy perennial gripe, so expect ritual beatings, irrespective of the strength of the findings of an investigation into the industry.

Libertarians already hate it and have tried to kill off this decision, which has been a long time coming. The  commission first raised its desire for market studies publicly in 2013.

But most of the rest of the OECD countries already have market studies in their competition.

And in another key area of potential reform, the Government is hanging back.

A separate decision on whether to reform Section 36 of the Commerce Act, the key clause outlawing abuse of market power, is on hold until mid-2018.

The issue here is what kind of test the commission uses to judge whether abuse of market power is occurring.

Currently, it uses a so-called 'counter-factual test' in which the actions complained of are compared against what might otherwise happen.

While that test might be made capable of working, no one's been happy with it for a long time, mainly because its interpretation by the New Zealand courts has, in the words of the Productivity Commission in 2014, become "idiosyncratic" and attempts to improve it through legislation have produced no improvement.

Meanwhile, the Australians are in the process of ditching their counter-factual test – enshrined in Section 46 of their Competition and Consumer Act – in favour of an alternative 'effects' test. That change is in the federal Senate now.

New Zealand is neither sure that an effects test will work better, nor how it will work in practice.

We appear to be waiting for Australia to get some experience with the new approach before deciding whether to take the plunge.

However, replacing one regulatory slingshot with another should not be assumed to fix one of the underlying structural challenges for an economy where small markets that struggle for economies of scale can allow a big player to squash a new entrant using entirely legitimate commercial tactics.

- BusinessDesk

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