Thursday, 24 September 2015

What competition problems have we got?

The Commerce Commission released the second of its Consumer Issues Reports today, and it's full of interesting stuff: here's the press release and here's the full report (pdf), and there's also an infographic, if you're into infographics.

There's quite a lot of media coverage already of the Fair Trading Act parts of the report - which companies and which sectors have most riled customers - so I won't go over the same ground. Thinking about the current Volkswagen debacle, all I'll add to the Fair Trading Act coverage is that while the Act is often seen as predominantly protecting the retail final consumer, it also has an underappreciated role in protecting good businesses from shady behaviour from their competitors, and in preventing the sort of "everyone's doing it" race to the bottom that seems to be part of the Volkswagen story.

Instead, I'm going to focus on the Commerce Act competition issues. The report uses this matrix to grade them in terms of seriousness -

- and I've clipped this list of the top ones ('very high' and 'high' level of detriment) from the full list of Commerce Act issues on p51.

The good news is that there's only one item in the red 'very high' detriment box, but it's a biggie that's been known internationally for some time to be a problematic area: industry associations overstepping the mark.

Businesses can have perfectly good reasons to cooperate and coordinate, and consumers will often benefit: indeed, failure to cooperate (in areas like telco number portability, for example) can prove to be serious impediments to consumers getting a good deal. But there's a  line beyond which cooperation shades into collusion. As the report says (p29), "Industry associations continue to feature in investigations into price fixing agreements and/or agreements that substantially lessen competition, particularly where an external shock or cost has affected members".

If I were actively involved in an industry association - and I use "industry" broadly to  include health and education - I think I'd be taking an urgent interest in exactly how far the association has gone along the cooperation/collusion spectrum, as there's a very high likelihood that this red box will be guiding the Commission's future investigative direction (if it isn't already). Fortunately there's any number of lawyers and (ahem) economists who can assist.

There's something of a common thread to three of the 'high risk' brown box items - exclusive dealing, first right of refusal, and most favoured nation. It may be that the Commission is mostly thinking of the electricity lines businesses - "Many complaint narratives are concerned with possible anti-competitive behaviour exhibited by lines companies operating in regional monopolies, keeping closed relationships with subcontractors, charging customers excessive prices, and pressuring customers to pay for necessary infrastructure" (p28) - but we'll have to wait and see what else might be lurking in the bushes. If you are a company that makes much use of exclusivity-style clauses in your contracts, again I think I'd be getting some second opinions.

The last one, access to 'big data', takes us into the general territory of things like the EU's current go at Google. How much progress the Commission might make on these kinds of issues, however - assuming they are indeed live issues in New Zealand - is anyone's guess, but the best guess is slim to none.

For one thing, the intellectual economic and legal issues in these kinds of cases are everywhere both highly complex, and unsettled. For another, almost by definition you're into s36 territory (abuse of a position of substantial market power), and that sends you crashing into two New-Zealand-specific obstacles. The courts have, after extensive, careful and learned consideration, gutted s36, and the policy wallahs at MBIE who've been asked to look at the problem haven't yet emerged from their transcendental trance. If there are serious issues in this space, the Commission has a half of five eighths of [insert your favourite metaphor here] chance to do something about it.

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