Consumer watchdog gets bigger teeth

OPINION: In some circles, competition is almost a dirty word: the apogee of the ‘‘neoliberal’’ 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.

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 co-operation of the participants.

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 Organisation for Economic Co-operation and Development (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.

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.

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.

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 ‘‘counterfactual 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 counterfactual 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 would 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 economy’s underlying structural challenges.

Here in New Zealand, small markets that struggle for economies of scale can allow a big player to squash a new entrant using entirely legitimate commercial tactics. –BusinessDesk