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Market studies, misuse of market power: lets have a look at how the Labour Government has tackled competition

Public Policy / analysis
Market studies, misuse of market power: lets have a look at how the Labour Government has tackled competition
Labour leader Chris Hipkins speaks at the 2023 campaign launch in Auckland
Labour leader Chris Hipkins speaks at the 2023 campaign launch in Auckland

The portfolio where this Labour Government has been very active is commerce and consumer affairs.

Many of the moves might be seen as minor plays when compared to other countries' competition legislation and policy. 

We don’t see, for example, monopolies being broken up. 

We seem overall, pretty comfortable, as the politicians say, being a country dominated by duopolies.

However, in New Zealand terms the Government's approach to competition has marked a major change in direction to our hands-off, fend-for-yourselves style of regulating business and competition.

So what has this government done?

Let's take a look at two of its more chunky achievements.

Market studies

This is a big bopper. Market studies gave the Commerce Commission the ability to do deep probes into selected industries, analysing whether the markets were in fact competitive, and working well, and what the outcome of that competition was for consumers.

It’s been a torrid ride so far, with the Commission getting off to a bumpy start, putting noses out of joint, and inciting pure fury from some sectors such as the supermarkets.

Business hasn’t liked them at all, but in a sign the Commission has gotten far better at socialising them, shall we say, the most recent banking announcement was greeted with little fire, and no fury.

The Commission has learned it needs to get out in front of the studies, and has taken a far more collaborative approach in more recent studies, with a healthy dollop of public relations, press conferences, open letters and getting in front of the media.

Chairman John Small acknowledges it has been adapting its approach.

Consumer NZ chief executive Jon Duffy says the Commission is now slick at market studies.

From the market studies we’ve had some interesting developments. 

Yes, we still have Fletcher ruling the building industry, but we got a change in land covenant laws, which were found to be hampering the development of rival stores.

It also showed we had big issues with getting building supplies certified, and that our councils had a risk-averse approach to allowing non-branded goods to be used. (No doubt as a result of them carrying the legal and financial burden of the leaky building crisis.)

A new law extended cartel provisions to cover land covenants and Carter Holt Harvey turned its back on using them to lock out competitors from sites, as did some of the grocery industry.

All of a sudden the Ministry of Business, Innovation and Employment (MBIE) worked out it could tell councils they could actually sign off on non-Fletcher branded plasterboard.

Competition lawyer Troy Pilkington says while the policy intent of a number of the amendments the Government introduced was understood, sometimes the way that the amendments were drafted didn’t reflect input from the legal and business community through the submission process and, therefore, resulted in commercial uncertainty and unintended consequences. 

The Russell McVeagh lawyer says there needed to be a legitimate business justification exemption for land covenants, for example, to enable land covenants where a neighbouring land use could prevent the necessary certainty to invest in new developments such as the development of new wind farms, as one example.  

“That is a concern we have seen play-out in practice, and we hope that MBIE's current review into New Zealand's land covenant laws can be used as an opportunity to introduce such an exception to provide the necessary commercial certainty for those investing in new developments.”

Other gripes have been about the market study process itself.

Supermarket insiders say their market study came at an awful time, as they were grappling with Covid-19 and supply-chain shortages. 

Market studies are costly for businesses, there are lawyers and consultants and accountants needed to help state your case, or defend your turf.

Of more concern, particularly for those in the supermarket sector, was the Commerce Commission’s draft report. 

This was seen as woefully inaccurate, with particular umbrage taken with the Commerce Commission’s calculations around excess returns on capital and excess profit.

The draft report found the three major grocery retailers (Woolworths, Foodstuffs North and South Island) on average earned an estimated return on average capital employed (ROACE) of between 21.6% and 23.8%, contrasted with international grocery retailers which the Commission found had average ROACE of under 15%.

By the time the final report came out, that ROACE number had dropped to between 12.8% to 13.1%.

The Commission, supermarket insiders say, got it “completely wrong”. 

And although the numbers were dialled back in the final report, “the damage was well done”.

Pilkington says it has been positive to see the Commerce Commission's approach to market studies evolve over time.  

He says in particular, in its first two market studies (retail fuel and groceries), the Commission sought to compare the returns of industry participants against the Commission's estimates of their weighted average cost of capital.  

Pilkington says it's positive that the Commission moved away from that approach in its more recent market studies, as the previous approach led to incorrect commentary about returns in sectors analysed being "excessive".

He says it is unfortunate, however, that the disputed findings from the Commission's former approach have since been used by the Government :to inform subsequent legislative responses to those market studies".

For consumers, critics have said the market studies simply haven’t gone far enough. Vertical integration, that is where a wholesaler is also a retailer in the case of the grocery sector, seems set to stay and consumers feel that power in building suppliers, grocery and electricity.

We never got heads on spikes, we never saw separation of those powerful firms to unwind their dominant market positions, we instead got more bureaucracy.

We now have a grocery commissioner, a supplier code of conduct, and consumers can see unit pricing at the petrol station, and in the supermarket.

Sure, it's not setting the world on fire, but it's something, and that should be acknowledged. 

Giving consumers better information to make decisions is always a good thing, but when the choice is effectively between two giants, it's not much of a choice at all.

On the brighter side, under the current Chairman John Small the Commission appears invigorated and he is making more noise about competition than we’ve heard in a while.

Consumer NZ’s Jon Duffy says the Labour Government should be congratulated for introducing market studies, and while it isn’t an overnight fix for competition, it is a change of direction we can take, with a base of evidence, that will “hopefully” get us on course to achieve more competition in the future.

Section 36

The Government introduced the Commerce Amendment Act 2022, which made changes to section 36 of the Commerce Act 1986, and the provision dealing with misuse of market power.

The old competition rules under section 36 of the Commerce Act looked at whether a business had acted with an anti-competitive purpose.

Now, under a new effects test, those with substantial market power are prohibited from engaging in conduct that has, or is likely to have, the effect of substantially lessening competition in a market.

Large firms now have a special responsibility to ensure their conduct does not have an impact on competition, or a substantial impact on competition in the market, that small companies do not have.

New guidelines set out examples of conduct which may breach the amended section 36. This includes a refusal to supply, exclusive dealing arrangements, price and margin squeezing, loyalty rebates, tying and bundling, and predatory pricing.

A number of these came up in the market studies.

Big businesses now need to think of how their conduct raises costs for their competitors, to what extent does their conduct cut off competitors from potential customers or suppliers, and to what extent does their conduct make it harder for current competitors or potential new competitors to compete.

The next step will be the Commerce Commission taking cases, which will iron out where the lines will be drawn on large firms who use their market power in anti-competitive ways, but those cases coming through the courts will take time.

Pilkington says former minister Kris Faafoi rightly acknowledged that "there are some forms of conduct that could, on the face of it, appear to breach the prohibition, despite not having an exclusionary purpose".  

However, he says despite that acknowledgement, no defence was included for businesses with a legitimate business justification.

He gives examples such as a supplier wishing to refuse supply to a customer that is a bad debt or credit risk, a supplier refusing supply to a customer where there are concerns that the customer may use the product in an unsafe or illegal way, a supplier refusing supply where it its facing capacity constraints that mean it cannot supply all potential customers, or a supplier withholding supply when it needs to cease production for repair and maintenance reasons. 

"As we submitted during the reform process, we consider that there needs to be legitimate business justification exception, as the current drafting does not provide the necessary certainty on the scope of the prohibition for businesses looking to engage in conduct for legitimate reasons, for example Instead businesses currently need to trust that the Commerce Commission will not take such cases, and if they do, that the courts should not find a breach.”  

Big firms are taking the law seriously.

Genesis Energy says it considers the amendment is a significant change to New Zealand’s competition law framework. 

In September, power retailer Electric Kiwi said it had laid a complaint under Section 36 about the so-called power gentailers, Mercury, Contact, Genesis and Meridian.

It alleges the big four, which both generate and sell power to consumers and other power retailers, were abusing their market dominance and action needed to be taken to protect consumers.

I understand the Commission is looking into this complaint, it would be fascinating if this is the first test of the new section 36.

Flick Electric has previously called for the power gentailers to be scrutinised by the Commission with its new section 36 powers.

He says a  gentailer’s retail business is able to purchase electricity from their generation business at an Internal Transfer Price (ITP) of their own choosing, which was “generally significantly lower than wholesale market prices”.  They then onsell the balance to independent retailers at a much higher price.

"The ITPs don’t include the same costs and risks an independent retailer faces. Essentially, gentailers are leveraging their vertically-integrated position to benefit from low electricity prices acquired through inherited assets."

Electric Kiwi says consumers are getting screwed as the big four flex their 85% market share.

Duffy says consumers can be encouraged to switch power companies, but independent retailers can just be undercut by the gentailers.

He says the section 36 amendment is another thing the government should be congratulated for.

Duffy says electricity should probably be the next market study.

"No review has looked at all aspects of that sector," he says. "I think it's ripe for it."

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Its not enough to give the commerce commission new powers - they actually have to have some teeth in using those powers, nobody is scared of the NZCC as been investigated by them is the same as been whipped with wet feather.

You only have to look across the ditch at the ACCC - who are feared by industry and rightly so, recent evidence been the QANTAS incident where the day the ACCC announced an investigation QANTAS immediately rolled over and all of a sudden remembered that passengers are customers and have rights.…

Until the NZCC starts handing down large fines and actually delivering change to competition in NZ - nothing will change in the markets and the NZ consumer will continue to overpay and receive inferior goods and services.


Absolutely right.  A lot of appearing to do the job without actually doing anything.  Window dressing for the sake of public opinion.  If they are so great where are the saving for the public.  As far as I can see, the subjects of any CC scrutiny have given the CC the fingers and increase prices even more.  Is it a case that "the CC has said that we are ok at the moment, so lets go for it and see how far we can push things"? 

At the outset of one of their recent "investigations"  they really revealed their true culture with a simple freudian slip statement to the effect that this investigation should assure the public that the X sector has free and fair competition free of monopolistic behavior.  Unfortunately I forget which sector it was, but it was one that clearly duopolistic, but that is not the point.  The point is that the CC commenced the investigation with the stance that there was no problem and the whole exercise was to calm the public. 

As you say they should not be there to cooperate with the private sector.  That is like saying that the police a there to cooperate with the gangs.  (I wonder if that is what is actually happening) Like Australia they will not be doing their jobs properly until the private sector has a healthy fear of the CC.

As things are at the moment, money spent on the CC is a total wast of our taxes.  We would be better off contacting the task to the Australian CC.


The once or twice I've needed to change or cancel a domestic Air NZ flight I never advise them so they can't on sell my cancellation. Too long ago for me to remember exactly but if I recollect at the time it cost you almost as much to change as to buy a new ticket.


Labour are ideologically incapable of taking hard decisions.…


I suspect kow towing to Iwi. Pity there isn't an in depth article on this. The CEO and CFO and most of the board responsible for this debacle should have been long gone if they haven't already. $45mill creditors and then declare insolvency.

Another $7mill until March I think next year. If they said end Oct or Nov, marginally more acceptable.


Genuine question: Does the business pay the Maori Authority Tax rate of 17.5%? If it's struggling with this then how would it fare in a truly competitive market i.e multitude of other ski fields in proximity. 


Labour have had 6 years. So they are great at setting up working groups and commissions but what has been the outcome in terms of actual change ? Petrol prices, supermarket prices, electricity prices the results have been zero.


They set up enquires, commissions and working groups to simply take the heat off them. 


"..but what has been the outcome in terms of actual change ?"

Consultants have done very nicely, thank you.

Definition: Consultants are those folk who come down from the hills after a battle and shoot the wounded.



Yeah, can't wait for National and Act to get in there and shake the foundations under those big donors!


Talk is cheap. So much talk.

Every time I partially fill up my 2 private (mine and my wife's 1.5 and 1.6L) cars and fill my work vehicle I cannot but wonder why am I paying so much for the 91, 95 and diesel when there was a perfectly good refinery down the road. 

Then I go shopping at the red, green or yellow and pay so much at the Self serve check-out as I can't be bothered waiting in the extended queues at the red and green duopolies. 

How about some action. Set some rules and boundaries and enforce them. Get Carrefour, or Wal-Mart or Aldi. Oh sorry, there's some deal between Woolworths and Wally's......Plus Australia and NZ are minnows in the scheme of things. Why would they bother to upset their supply agreements with Woolie's.

Carrefour make New World and Countdown look like discount stores. Product offerings, the range and pricing all contribute to making me feel like I'm being taken advantage of here in NZ.

Paying top $$ for less than acceptable service.


"...but its something, and that should be acknowledged." No bloody way! Labour had an unprecedented mandate to smash the duopolies (supermarket, building supplies, electricity etc) that inflict untold pain on NZers, and they muffed it. You can't apologise that away one bit. 


They might have been given the mandate, but I'm wondering more and more whether the internal politics became such a huge distraction for the thin talent there that nothing was ever going to be delivered.


Yes Rebecca.   “…....We don’t see, for example, monopolies being broken up. 

We seem overall, pretty comfortable, as the politicians say, being a country dominated by duopolies...."

But we do need the monopolies broken up.  Not only are they screwing New Zealanders, they are also inefficient.  They don't make money from efficiency as they claim, they profit from their control.

Labour, being lefty, thinks everything can be solved by wise administration.  Leaving aside that they can't administer wisely anyway, that approach does not help their presumed constituency, ordinary New Zealanders.

Their supermarket solution, commissioner and code of conduct would be a laugh if it were not so sad.

To be effective they should have gone for breakup.  A short and simple regulation that the maximum outlets in each group is say 50.  (NW currently has about 250).  Let them themselves decide how to break up. It does not need to be administered by government, just meet it by date X.

We actually have a variety of players wanting to step up.  The small Asian chains, the IT guys etc.  Really good.  The gaps will fill with variety and innovation, opening opportunity for small producers and consumers.  Enterprise would be unleashed.

Clearly I am a fan of free markets.  But recognise "Free market" also an oxymoron, in that the free market players always seek to make it less free, as has happened in New Zealand.  If you made it completely free it would stop being free very quick.

So to get a free market you need a strong supervisor with a big stick.  With small government, brief but powerful rules, and ditching the "administration" approach.


And do we have a political party to deliver the stick? I certainly haven't seen one.


Based on the last 100 years, that also seems to be a duopoly (or cartel).


Agree KH. This is where ACT are most disappointing. They should be all over this but their backers in the Epsom Oldboys club won’t allow it. 


Many business did very well out of the apprenticeship scheme . Most  would never give Labour credit for it though. 


We can expect ComCom to be seriously scaled down under a National / Act government.

They'll go back to being the toothless ineffective department they used to be. Such a shame as there was a steady build of momentum.

I guess NZ voters like being stiffed by large faceless oligopolies that pretend to be in competition.

(Every time I hear either of the supermarkets claim that competition is 'fierce', I'm reminded to two obese middle-aged men in a ring swinging ineffectively at each other. Same for banks in NZ except these guys look like the Monopoly man.)


But Labour love monopolies

look at Health and Education - and then polytechs and DHB's were removed to make even bigger monopolies

and water services were destined to be a monopoly as well 


Its not that Labour are specifically anti-business in their intention, its simply that they assume anyone that has risked their own capital must be rich and can pay for everyone else. They are about to find out just how wrong they are.