Ed­i­to­rial

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En­forced com­pe­ti­tion – an oxy­moron, or a rea­son­able role for a gov­ern­ment? The Gov­ern­ment’s up­grade of the Com­merce Com­mis­sion to make it a more ac­tive in­vig­i­la­tor of our mar­kets poses some com­plex ques­tions. The Gov­ern­ment rightly dis­cerns that New Zealan­ders want more, not less com­pe­ti­tion, to keep prices down. But how far should the state go to im­pose lim­its on market play­ers deemed over-dom­i­nant? The com­mis­sion’s newly mus­cu­larised “market study” pow­ers will in­evitably pose the crunch ques­tion for politi­cians: is reg­u­la­tion nec­es­sary, and if so, is it po­lit­i­cally saleable?

Reg­u­la­tion re­mains an ugly word to many in busi­ness, and is not a market fea­ture beloved of in­vestors. It can fix one set of prob­lems but cause an­other. The ide­al­is­tic view that an un­fet­tered market is the only healthy market still holds pow­er­ful sway.

A market of our size, how­ever, can­not al­ways sup­port suf­fi­cient num­bers of play­ers to achieve fair com­pe­ti­tion. In the gro­cery sec­tor, the two na­tional su­per­mar­ket chains are over­whelm­ingly dom­i­nant. In petrol, it has be­come clear the “big four” dom­i­nant re­tail­ers pad their mar­gins and may be more of an oli­gop­oly than gen­uinely vig­or­ous com­peti­tors. That’s why the Gov­ern­ment has told the com­mis­sion to make them its first market study. Even its foe, Na­tional MP Ju­dith Collins, ap­plauds this, hav­ing tried to tackle price-pad­ding her­self as pre­vi­ous en­ergy min­is­ter.

Even so, the is­sue is con­tro­ver­sial – both as it per­tains to petrol specif­i­cally, and with re­spect to the wider ques­tion of whether the state should pry into com­pa­nies’ busi­ness mod­els.

Peo­ple rightly com­plain that the Gov­ern­ment it­self takes about 28% of petrol in taxes, ex­clud­ing GST and the tem­po­rary Auck­land sur­charge. How­ever, by world stan­dards, our fuel tax­take is in the mid­dle of the range of OECD coun­tries, and much of it is spent on roads, pub­lic trans­port and other con­sumer ser­vices. Scrap­ping or low­er­ing the tax would not nec­es­sar­ily be of net ben­e­fit to the econ­omy or mo­torists.

A fairer point is that leav­ing petrol dearer will lift the up­take of hy­brid and elec­tric cars. Still, how per­verse to gain this green bonus by fail­ing to chal­lenge fuel com­pa­nies’ prof­its. Also, the elec­tric­ity sec­tor isn’t ready to ser­vice a mass elec­tric fleet – in­ci­den­tally mak­ing it an­other sec­tor over­due for se­ri­ous scru­tiny.

What’s re­mark­able is the re­sis­tance, in­clud­ing from many of Collins’ col­leagues, to the very prin­ci­ple of market stud­ies. It’s not as though the com­mis­sion will re­lease com­pa­nies’ com­mer­cial se­crets. It’s em­pow­ered to de­mand data rel­e­vant to di­vin­ing col­lu­sion, prof­i­teer­ing and bar­ri­ers to new en­trants. Where is the men­ace in that?

Still, there’s even a view, stated by for­mer Aus­tralian Trade Min­is­ter An­drew Robb, among oth­ers, that there’s noth­ing wrong with oli­gop­ol­ies. He has said Aus­tralia should con­tinue to foster its “market cham­pi­ons”, al­low­ing them to grow to in­ter­na­tion­ally com­pet­i­tive size, and ac­cept that it is “an oli­gop­oly econ­omy”.

Here there’s gen­eral, if grum­bling, ac­cep­tance that Fon­terra and Air New Zealand should have spe­cial sta­tus as dom­i­nant play­ers. But that’s been con­ferred for rea­sons of po­lit­i­cal and/or eco­nomic con­ve­nience. Both ti­tans’ po­si­tions re­main un­der re­view in terms of over­all eco­nomic ben­e­fit – Fon­terra’s en­abling leg­is­la­tion is un­der statu­tory re­assess­ment.

It’s pos­si­ble the mere threat of a market study will cause some com­pa­nies to stop anti-com­pet­i­tive prac­tices vol­un­tar­ily – such as Merid­ian En­ergy’s re­nounc­ing $5 mil­lion in what it now ad­mits are un­jus­ti­fi­able “late pay­ment” penal­ties.

Bank­ing is an­other sec­tor ripe for in­spec­tion. Aus­tralia’s bank­ing in­quiry found wide­spread preda­tory prac­tices. The cus­tomers of our Aus­tralian-dom­i­nated bank­ing sec­tor de­serve re­as­sur­ance that the same tricks are not tried here.

Prime Min­is­ter Jacinda Ardern has said the su­per­mar­ket du­op­oly may be sur­veyed af­ter petrol providers. In the UK and Aus­tralia, where the sec­tor has sig­nif­i­cantly more com­peti­tors, gov­ern­ments are in­creas­ingly oblig­ing su­per­mar­ket chains to fol­low codes of prac­tice, which are reg­u­larly re­viewed, be­cause re­cent years’ in­quiries found se­ri­ous anti-com­pet­i­tive be­hav­iour.

Their con­cern is not just cus­tomers, but the small­er­busi­ness sup­ply chain whose liveli­hoods can be un­fairly af­fected by too-dom­i­nant market play­ers. On that count, let’s add the con­struc­tion sec­tor to the com­mis­sion’s to-do list.

In­stead of be­ing de­fen­sive, com­pa­nies might con­sider that market stud­ies could just as eas­ily work in their favour. It’s pos­si­ble the more we know of a sec­tor’s pres­sures and pe­cu­liar­i­ties, the more im­pressed we are with its ef­fi­ciency un­der the cir­cum­stances. Ei­ther way, the more we know,

the bet­ter.

In­stead of be­ing de­fen­sive, com­pa­nies might con­sider that market stud­ies could just as eas­ily work in their favour.

Eyes on fuel: Jacinda Ardern and Ju­dith Collins.

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