The competition watchdog should ditch the study of building materials and roll up its sleeves

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OPINION: It may be hard to believe, but the odds that embattled consumers will reap the benefits of increased competition in various markets, from electricity to homebuilding, jumped thanks to a law change late Wednesday.

Monopolies, duopolies and oligopolies are more the ‘norm’ than the exception in the New Zealand economy due to its small size.

But so far it has been difficult for the country’s competition watchdog to prosecute companies when they exploit market power to undermine competition, as it has had to prove that was their intention. .

“Motivation” is notoriously hard to prove, because it’s something that exists in people’s heads that no one can attack.

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But Parliament has now passed an amendment to the Commerce Act which brings competition law more in line with Australian and UK law.

Once the change in the law receives Royal Assent, firms with significant market power can be prevented from engaging in behavior that could have the effect of substantially lessening competition, whether or not that is their objective.

This is by no means a simple rule to apply, but it essentially means that courts can now be concerned with the impact of decisions, rather than their intent.

Matthews Law’s regulatory lawyer, Andy Matthews, says amending Section 36 of the Commerce Act is not a “silver bullet” for competition concerns, but it is important.

“You had to be a moron not to be able to defend your client under the old ‘Section 36’ because just about anything any company does, you could find a credible business reason for their conduct,” says -he.

The Commerce Commission has now moved on to its third market study, on building materials.

MONIQUE FORD/Stuff

The Commerce Commission has now moved on to its third market study, on building materials.

However, to really make a difference, changing the law needs to be paired with a competition regulator who is willing, able and resourced to do the work that really matters to consumers, not just the more esoteric stuff. .

Warning telcos to market broadband packages that deliver around 900 megabits per second as “gigabit” packages is the kind of yawn-worthy activity that comes to mind in the latter category.

But that also means not wasting millions of dollars on market research such as the $2.5 million fuel market study or the $3 million grocery market study that result in recommendations that are either insignificant (putting the price of ’95’ on price signs) or unavoidable from origin (a supplier code for large retailers).

Given the lessons learned from the fuel and grocery market studies, the commission and the government should consider avoiding wasting good money after bad.

That would be a bold step of course, but it might be better at this point for the government to cancel the upcoming building materials market study and for the commission to focus instead on using its new powers under Rule 36 and its existing powers to get some real races on the board.

The building materials study could still be warranted if the commission were to recommend major structural reforms to the industry, such as divestments by major suppliers who hold large market shares.

But Matthews notes that following his grocery report, “no one believes they’ll do it by building now.”

Outgoing Commerce Commission chair Anna Rawlings said the commission decided not to separate Countdown and Foodstuffs in part because such action would be complex and “unprecedented” internationally.

If the watchdog plans to continue to stick to the “easy things” on busy roads, there is no way it will try to restructure the messy and fragmented building materials industry.

In fact, most market research findings could be written right now.

Commerce Minister David Clark has signaled that the government will not go beyond the Commerce Commission's limited recommendations on supermarket reforms until it has had time to assess their impact.

ROBERT KITCHIN/Stuff

Commerce Minister David Clark has signaled that the government will not go beyond the Commerce Commission’s limited recommendations on supermarket reforms until it has had time to assess their impact.

The Department for Business, Innovation and Jobs has already found that it is common for dominant suppliers to use ‘discounts’ to reward distributors who are successful in consolidating market share.

I doubt that many consumers believe that the amounts builders charge them for most materials when they do renovations match the prices those builders actually paid.

There are “closed workshops”, where suppliers tightly control the distribution or installation of their products.

Matthews says there are even instances where suppliers have managed to ensure industry standards are written in a way that only allows their own products to be used and excludes competition from imports.

All of these known practices will no doubt be cataloged by the commission and it may ask whether the industry is willing to take voluntary steps to clean up its act.

But the question is whether the commission could do better for the money sooner by rolling up its sleeves and jumping straight into enforcement and regulatory action.

“Do we really need these big, expensive surveys or should we just target legislative changes where they are needed?” Matthews asks.

The building materials industry is full of “discounts” that can make product pricing less transparent.

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The building materials industry is full of “discounts” that can make product pricing less transparent.

More generally, the granting of new powers to the commission through the amendment to section 36 of the act makes it a good time to consider whether the watchdog is correctly setting its priorities and delivering the results expected by the public. .

“The few times I’ve been a complainant, I’ve been surprised the commission hasn’t been interested in pursuing things,” Matthews says.

“What they tend to pursue are ‘cartel’ cases, which frankly aren’t real cartels, and fair trade cases.”

The commission has good investigative skills and expertise in regulating industries, for example in assessing the cost of capital, but are not “industry experts”, says Matthews.

Building materials review raises question of whether reforms might be needed to ‘join the dots’ between commission, MBIE and Productivity Commission ‘which is in the process of thinking’, he says .

The Maori National Authority has said Maori should have the right to appoint a watchdog commissioner.

But with public satisfaction with the Commerce Commission seemingly at an all-time low, it’s also worth considering whether it needs more help, in general, from the public and from subject matter experts to assess what should be his priorities.

“They actually need someone to tell them ‘hey, it’s the case to bring’ or don’t bring,” suggests Matthews.

For the moment, nothing indicates to the commission that it thinks it needs such assistance.

Perhaps he might have a different view of his priorities if he was persuaded from his high-rise offices on The Terrace in Wellington at the ‘big end of town’ and relocated to a ground-floor building at Porirua or Lower Hutt in more direct view of the public whose interests it serves?

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