Wednesday, 12 February 2014

Another example of how to measure competition

In my previous post I was making the case for the Commerce Commission, and others, to have a stab at measuring the levels of competition in our major markets, as I reckon it's increasingly becoming more of a practicable option.

I'd no sooner posted the piece when another example of how you can do it came to hand. I found it in Sapere's report for Business NZ, 'Achieving policy goals for the electricity industry', where Sapere were talking about the state of competition in the electricity retailing markets, and they included three bits of data that the Electricity Authority had compiled.

Here are two of them: the first is the evolution over time of the HHI concentration indices in the market, and the second is how often, over time, consumers got approached by retailers looking for their business (I haven't included the third - regional consumer switching rates - because, while it's interesting, it was a single snapshot of 2012 and didn't give you the same feel for how things were changing over time).

Purists might argue that each of these indicators, on its own, isn't a clearcut measure of the degree of competition. And those of us who live in the real world would answer, actually, taken in the round, they paint a very convincing picture of competition increasing over time. They don't imply that there isn't more that could happen, and they don't imply that the current state of affairs is acceptable, but they do show clear movement in the right direction.

And so I say it again: we need more people, doing more of this competition analysis, across more of our industries.

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