The Commerce Commission shouldn't stop with the petrol companies – here’s why

by The Listener / 25 October, 2018
Jacinda Ardern and Judith Collins. Photo/Getty Images

Jacinda Ardern and Judith Collins. Photo/Getty Images

RelatedArticlesModule - Commerce Commission petrol companies

The Government is setting its sights on the “big four” dominant petrol retailers – and there are plenty of other targets.

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 tax-take 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 smaller-business 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.

This article was first published in the November 3, 2018 issue of the New Zealand Listener.

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