Monday, 9 August 2021

The future is hybrid

The Competition Law and Policy Institute of New Zealand (CLPINZ) held its 32nd annual workshop in Wellington over the weekend. As is the norm these Covid-plagued days, it was a 'hybrid' event, with people having the option of attending in person or online: the Commerce Commission's going the same way later this year, and the NZ Association of Economists ended up there perforce, when Day 1 of their conference got away in person but Day 2 fell foul of a Wellington lockdown and was rescheduled online.  

My guess is that even when Covid is gone, we'll stick with the hybrid model: there will always be takers for both options, and (let's face it) the online option makes for much cheaper overseas speakers. Plus the technology is in the bag: Charlotte Emery and her Conference Innovators team did a fine job successfully juggling speakers from Washington DC, Brussels, Sydney and Melbourne, as well as hosting online attendees from Australia and New Zealand. Hat-tip, too, to workshop dinner venue Dockside: confit duck, twice-cooked pork belly, and dark chocolate torte worked for me.

The big opening keynote, chaired by Lane Neave's Anna Ryan, was the University of Chicago's Dennis Carlton on merger retrospectives. This wasn't Dennis's first CLPINZ rodeo - he gave the keynote at CLPINZ #21 in 2010 - and it was great to have him back as one of those heavy academic hitters who can put economics across in plain English and whose analysis is informed by getting his head around real world cases (he was involved in Air New Zealand / Qantas, for example). Dennis said that competition authorities obviously ought to look back and see how their merger decisions played out, but they should focus not just on the market pre- and post-merger, but also, in the interest of upping their game, on how well their modelling and analysis at the time actually played out later. One of his examples was US airlines, where six big airlines merged down to three (Delta/Northwest, United/Continental, American/US Airways): you'd guess (well, I would, anyway) that this would not be good for the travelling public, but in the event his econometrics showed quite clearly that "these mergers have been pro-competitive, with no significant adverse effect on nominal fares and with significant increases in passenger traffic as well as capacity".

Commentator, NZ ComCom chief economist Lin Johnson, spoke about local merger experience. My takeaway was that it could be a temptation to be overoptimistic about the prospect of expansion, entry, re-entry, or imports effectively constraining the merged entity. For overseas constraints, like new entry or import expansion, it's particularly important to make sure that new entry is indeed on the strategic agenda of the mooted entrant, and that (even if willing to come in) world market conditions don't make other options elsewhere more attractive. And it's worth checking the sensitivity of would-be import expansion to small changes in exchange rates. And both Dennis and Lin talked about the importance of thinking ahead about the sort of data you'd like to have about post-merger outcomes.

Next up, chaired by Russell McVeagh's Troy Pilkington, we had John Land on 'Anti-trust and IP' (i.e. intellectual property), with Russell McVeagh's Petra Carey as commentator. The argument was that proposed changes to s36 of the Commerce Act (moving to an 'effects' test for abuse of market power) and to s45 (repeal of the provision whereby merely enforcing your patent rights didn't put you foul of s36) could end up interacting in an unhelpful way. The risk is that perfectly unexceptionable commercial patent-licensing, which could even be efficient and pro-competitive, could be miscast as having the effect of constraining competition. If I were the Economic Development, Innovation and Science Select Committee, which will let us know its views on the Commerce Amendment Bill in mid September, I'd be tempted to rethink repeal of s45.

Onwards to 'Economic regulation of water', chaired by Chapman Tripp's Simon Peart, with NERA's Will Taylor and Water New Zealand's CEO Gillian Blythe as speakers - Will laying out exactly what the regulatory issues are in the current programme of 'Three Waters' reform (drinking, storm, and waste), and the tools that might be used to achieve them, and Gillian giving us a lot of helpful background on how the industry operates. If this is all news to you (as it mostly was to me), then you'll find the reform proposals here, while Gillian pointed us to this very useful trove of water performance data. Sadly, the story hitherto is one of an immensely fragmented system with a chronic infrastructural deficit and periods of acute crisis (think Auckland's inadequate reservoirs, Havelock North's drinking water, Wellington's pipebursts). Incentives to foster dynamic efficiency have clearly either fallen down or are perverse (eg electoral incentives to keep the rates down today while the pipes burst tomorrow). The proposed consolidation into four national water service entities looks a useful first step: whether better dynamic incentives will kick in, though, isn't at all clear.

Session 4, chaired by Bell Gully's Glenn Shewan,  was on media bargaining codes, which took us into the competition issues of bargaining imbalances between the big social media platforms and the news media, and what, if any, compensation should be paid by the likes of Facebook and Google for the public good of news provision. King & Wood Mallesons' Wayne Leach took us through the system Australia has set up (it's Part IVBA of their Act), while we got New Zealand industry viewpoints from Stuff's Editor in Chief Patrick Crewdson and NZME's General Counsel Allison Whitney. Wayne posed a number of questions, with maybe the big one being whether competition law can, or should, be extended to solve all the world's ills. And while Patrick claimed not to be an economist, he nonetheless managed to reason his way exactly to where an economist would have got on externalities (tax negative externalities like conspiracism and fake news, subsidise positive externalities like non-partisan newsgathering).

If session 4 had wondered whether competition law has a role in regulation of digital platforms, session 5, chaired by DLA Piper's Alicia Murray,  wondered what, if anything, it could or should do to assist with rolling back climate change. Brussels based Jordan Ellison from Slaughter and May took us through how European competition law can in theory be compatible with firms' cooperating for environmental benefit: a 'carbon defence' would apply if, say, three firms collectively agreed on some action to eliminate X tonnes of emissions, and would be safe from challenge if the value of any subsequent price rise to consumers was less than the overall saving to society from the emissions saved. The commentator, principal economist Reuben Irvine of ComCom, reminded us of 'Sustainability and Competition - Note by Australia and New Zealand' (available, with other useful stuff, here), where the good news is that in both countries the definition of a net benefit is wide enough to encompass things like environmental payoffs (as, for example, it was also wide enough to accommodate the democratic value of media plurality in the mooted Stuff/NZME merger). We'd have less difficulty accommodating genuinely (net) beneficial cooperation than the Europeans might. That said, inter-competitor agreements shouldn't be the default, and businesses shouldn't be able to stop competing in the sustainability dimension of their product offerings without some vigorous tyrekicking.

And finally we got to 'Consumer data right and open banking', chaired by moi but with the heavy lifting on the session structure largely down to Will Taylor. Rosannah Healy from Allens in Melbourne took us through the Aussie experience with legislating for consumers' control over the assignment and use of their data: they've been up and running since 2017, while we're still at the stage of planning legislation for next year (you can read our policy decision here). And Josh Daniell, CEO of open finance platform Akahu (mission, "to empower consumers to gracefully control and leverage their personal data")  showed us what sorts of applications we are actually likely to see in New Zealand. The CDR is a really exciting development: in principle, it should reduce switching costs and enable new entry in sectors such as banking (typically one of the first cabs off the rank when CDRs get underway), electricity, and  telecommunications. In practice, it tends to take quite a bit of drawn-out sector-specific customisation, but I wouldn't underrate its potential to be a game-changer over the longer haul.

Two final thoughts. One was that the workshop would would have been good in any event, but got an extra boost from hearing from industry players like Gillian, Patrick, Allison, and Josh: at our table (a motley crew of economists, lawyers, officials and enforcers), we all felt we learned a lot from them. And the other, which emerged across various sessions, was that the Commerce Act is looking decidedly moth-eaten. There have been targeted reviews of bits of it (like the one that culminated in the current s36 proposals and the, overdue, ability for ComCom to conduct market studies), but when you look at the current inability of ComCom to establish industry codes (à la supermarkets inquiry), or to accept behavioural undertakings in mergers, or to issue interim authorisations as it used to be able to, or elsewhere (eg the clunky wording of the retail price maintenance sections), it looks like it's time for a vigorous spring clean.