Sunday, 28 July 2019

I've been to a conference

The Commerce Commission's biennial 'Competition Matters' conference has wrapped up. Here are some of my takeaways: where the road forked for parallel sessions, I went the economics / competition / regulation route rather than the law / fair trading / consumer protection path, so if you prefer that end of the world you'll probably need to watch the recordings of those sessions (they're not up on the Commission site yet, but can't be far away).

If there was an overarching theme, it was Big Data and all that new digital economy stuff. Repetitive though it sometimes can be to be reminded, again, of the ever-increasing pace of change, the reality is that we are indeed in the early stages of one of those transformative technologies that alter how entire societies behave and work. It's right up there with the printed book and the car. My main takeaway was that, if you subscribe to the traditional 'is there a problem / what's causing it / can we fix it / ought we' policy model, competition analysts everywhere are largely at sea. They haven't satisfactorily got over the first fence, let alone the rest of the course, or as the Singapore Commission's Han Li Toh put it more formally, we're all still looking for "adequate evaluative tools".

For what it's worth, I could easily be convinced that the net benefits of the new technologies massively outweigh any costs, and some of of the scaremongering reminds me of the comparable 'make a man walk with a flag in front of it' response to the arrival of the car. By all means ping any of the big players if you can indeed find them guilty of the same sort of rort a steelmaker might get up to (though we're not even sure enough on issues like market definition to be able to do that), but otherwise from a competition policy point of view I'd be very loath to jump to premature controls of any kind, let alone the heavy duty structural separation ideas that are being floated on the American presidential campaign circuit. Maybe I'll change my mind when I eventually get round to reading the UK's Furman report ('Unlocking Digital Competition') and/or the ACCC's doorstopper 'Digital Platforms Inquiry', summary here, which appeared as the conference was underway, but for now count me among the anti-competitive agnostics.

I was very encouraged by what's been called 'NewReg' regulation, the idea that panels of consumer representatives can be given authority to strike product quality agreements with regulated businesses. At the moment for, say, our electricity lines businesses, we default to things like frequency or duration of power outages, on the assumption that regularity of supply is the key quality characteristic in consumers' eyes. But it mightn't be. They might care more (and did, in the case of AusNet, the Melbourne area lines business where this got a trial) for how quickly a company cleans up after things like power surges, or whether they can easily get hold of someone at the company when they need to talk to them about something.

When the consumer panel wandered - like "curious chooks" as its chair put it - across the whole of the lines business, they found heaps of things that could easily be made to work better for consumers. It reminded me, in a good way, of the management fad a few years back for 'process reengineering'. Remarkably, they found improvements that would both benefit consumers and save AusNet money, which is a remarkable illustration of the general proposition that monopolists can be very dozy indeed when not challenged (I don't mean that to be especially critical of AusNet, who after all embraced this NewReg trial and ran with it). I'd say there is clear room for this to be at least a complement to our current 'building blocks' regulation, and in an ideal world a replacement for it. And I also wonder about the community trusts who run some of our lines businesses, and are hence exempt from price control on the assumption that the community ownership structure will constrain monopoly power. How effective have they actually been in that curious chook role? Or have they been [insert your favourite harmless animal metaphor here]?

Market studies - the first one isn't far away now, with the draft petrol study maybe two to three weeks away. For the sake of the new regime, this first one needs to go well, and not just on the technical market analysis stuff but also on how it is sold to its various audiences. One of the things that the very experienced Roger Witcomb, former chair of the UK Competition Commission, emphasised was that market studies need government support, and while you don't want independent authorities like our Commission pandering to the current public service please-the-pollies zeitgeist, this first one needs to hit all the appropriate persuasiveness buttons.

Roger also stressed being remedy focused from early on, accepting that you don't necessarily know, day one, how a study is going to unfold. In our regime, the Commission doesn't have any market study enforcement powers, and maybe that's broadly right and best left to the pols. Commissioner John Small mused, though, about whether it would be useful for our Commission to have a power to initiate binding codes of conduct, along ACCC lines: that might well be a useful extension (either in the market studies context or more generally). And speaking of remedies, it's useful that (ahem) some of us helped get s51E into the law ("The Minister must respond to the final competition report within a reasonable time after the report is made publicly available") to stop the minister sitting on the Commission's recommendations.

The big keynote speeches were very solid. Dr David Halpern on behavioural insights convinced me (and others, going by coffee urn chats) that competition analysis needs to look hard at how consumers actually behave in the real world rather than relying solely on the old utility maxing within constraints we default to. Dr Howard Shelanski on competition intervention in markets likely confirmed us in our existing views on price controls (ick) and line of business regulation (meh) but opened our minds to potential greater use of access regulation. And Ed Willett left us with some warm fuzzies that we've rolled out fast fibre-based broadband better than the Aussies have, and also raised the possibility that maybe some of the old rationales for telco regulation may not apply any more. If I'm sitting at home with a choice of copper, fibre, and three mobile networks selling fixed wireless (in turn based on competitive backhaul markets), where's my regulatory problem?

Assorted other snippets: it is indeed probably worth kicking the tyres harder when looking at vertical mergers, though, on the other tack, if you're looking for the paper that Martin Cave cited, pointing to the unexpectedly widespread efficiency benefits of vertical mergers, it's 'Vertical Integration and Firm Boundaries: The Evidence'. And despite Dr Darryl Biggar's emphatic 'No' to my question about whether electricity lines businesses should be let play in the solar and battery markets, I think I'll remain open to it for now, if only for pragmatic get the damn thing done reasons.

Finally, the panel on 'Why does competition really matter?' looked at how the work of regulators sits with the broader national wellbeing agenda as set out, for example, in Treasury's Living Standards Framework. I didn't warm to one bit of it: there was, I thought, a bit of unnecessary economist self-flagellation. It's not (in my humble) true that economists in general have been mesmerised by GDP and monetary costs and benefits, and oblivious to soft outcomes they couldn't measure, nor that competition authorities have also been blind to them. Look at (for example) the Commission's decision on NZME / Fairfax, where by far the biggest moving part was the likely loss of media plurality in the civic marketplace (as I discussed here).

But the rest of the panel's ideas were spot on. If you look at two of New Zealand's biggest challenges - productivity (low and sticky), and poor outcomes for too many at the bottom end of the heap - making competitive markets work properly helps on both fronts. Stronger competitive pressures could do a useful Schumpeterian job of clearing out our disproportionately long tail of low productivity firms (as the Productivity Commission's Murray Sherwin noted). And on the equity front, it's inevitably the most vulnerable who fare worst when the anti-competitive fix goes in.

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