Wednesday, 4 April 2018

Three cheers for Part 3A

Just before Easter the Minister of Commerce Kris Faafoi announced that New Zealand is at long last going to get ‘market studies’: proactive investigations into the state of competition in sectors or markets to diagnose whether they are operating as well as they might. And, commendably, he’s getting a move on with it, saying that “I have asked officials to fast track this Bill to be operational by the end of 2018”.

It's excellent news. As MBIE's comprehensive Regulatory Impact Statement (RIS) notes (p3), we've been the odd man out: "A 2015 OECD survey of competition authorities found that out of the 62 competition authorities that responded, only New Zealand and Chile did not possess market studies powers". And with our Commerce Commission powerless, "Outside of a few sector-specific regulators, no agency has a specific mandate to undertake proactive activity to promote competition in low-competition areas of the economy, rather than just punish anticompetitive conduct" (RIS, p6, emphasis in original).

And now that we've belatedly got round to it - as the RIS reminds us, all this is in response to a Productivity Commission recommendation from back in 2014 - we've generally done a good job of designing our scheme, which will form a new Part 3A of the Commerce Act. In particular market studies, which we’re going to call ‘competition studies’, will be able to be started either by the Commission itself, or on the direction of the Minister, which is the right approach. As the RIS says (p13), leaving to it ministers alone “could mean that, from time to time, areas of the economy that may warrant a market study  would not receive one".

MBIE is also right to say (p11) that market studies aren’t always about pinging the baddies:
“even a market study that did not identify ways of improving market performance would have benefit in itself, by: 
a. reassuring relevant stakeholders and the wider public that a market is performing well; and
b. potentially avoiding costly and unnecessary government intervention in a market”.
There are a few things I would improve. The Commission or the Minister may instigate a study if, in the words of the Bill, either one “considers it to be in the public interest to do so”, but there is no requirement for them to spell out why they think it is. They are required to spell out the terms of reference and specify when the report will be finished: I think it would be good practice to also say exactly why they’re bothering in the first place.

And MBIE is of the view (p10) that “The Minister would not be required to formally respond to any Commerce Commission study, although in practice it is expected that the Minister would be likely to do so”. I don’t think it’s sensible to use the scarce expert resources of the Commission, and spend the taxpayer’s money, on a study that a Minister could in principle shelve, and you would get better accountability and transparency with a formal onus to respond.

I was also not too sure about MBIE’s final thoughts in its RIS. MBIE thinks (p20) that “it would have a key role in overseeing any market study”: that’s not how independent inquiries by specialist tribunals work. And MBIE “will continue to monitor levels of competition in the working on establishing a cross-government competition research agenda...[and] will continue to undertake quasi-market-studies itself where necessary, and as capacity permits”. Well, maybe, but MBIE’s own inquiry into the petrol market wasn’t a total success (see here and here), and they’d be better advised to let the Commission get on with the job, at least where competition issues are likely to be the main focus.

As a general and related point, we need to get better at clean lines of responsibility (Commission does this, MBIE does that), and as it happens this new Bill also has an excellent example of our tendency in the competition arena to second-guess and complicate. The Commerce Act has a ‘cease and desist’ mechanism, originally designed to be a quick response to temporarily freeze anti-competitive behaviour and sort out the big bunfight later. But it was hedged about with so many provisos and checks and balances that it was almost impossible to deploy in the prompt way intended, and is now being junked as useless. It was a good idea, strangled. Market studies are a good idea, too: give them to one agency, and leave them to it, and junk “quasi-market-studies” elsewhere.

But enough of the quibbles (though did I mention that this idea was floated in 2014 and it’ll have been over four years before a completely unremarkable feature of overseas competition policy sees the light of day in New Zealand?). This is a very good idea that is finally getting the legislative priority it deserves – well done to everyone who’s assisted along the way.

Next milestone – reform of section 36...


  1. three cheers indeed! this is a very welcome development.

    we're more dependent on oligopolies in nz than other developed countries - and (lack of) competition is rightly being fingered as a drag on our productivity, so it'll be nice to stop dragging the chain in this way.

    i agree that the minister should be obliged to respond to the substance of a report, and that mbie should stay well away rather than having "a key role in overseeing..."

    less concerned about an up-front reason - they will be at least implicit in the gazetted terms for the studies - but i can see the point.

  2. Thanks for the comment John. Yes, the up-front reason wasn't really necessary, as you say TORs would probably cover it, but I thought it might be some slight disincentive to Ministers going off on populist sectoral witch hunts.