This year, the society will work in a large range where rabbits are ruining the hillsides, plentiful possums have been eating everything, and someone thinks they might have seen a wallaby.
If you headed out to the range to assist in pest eradication, you’d probably be surprised if you were tasked with hunting for signs of that wallaby. Sure, you wouldn’t want wallabies to expand their domain. But there are thousands of rabbits and possums right in front of you. You could plink at them with a .22 rifle. You could set up bait stations and poison.
But no.
You have to go looking for that wallaby.
Commerce Minister Andrew Bayley has announced a targeted review of the Commerce Act. Its aim is to promote competition by checking whether the Act is fit for purpose.
It is a worthy aim. There are targets that obviously need attention.
Instead, the review is largely sending us on a wallaby-hunt.
It isn’t that the Review is pointless. The suggestion to review the Commerce Commission’s governance is sensible. As the Initiative has long argued, it is not fit for purpose.
But much of the Review aims at minor problems on a range overrun with very large problems.
Let’s consider the large problems first.
New Zealand’s land use planning system enforces de facto cartels. It sharply restricts the number of locations in which specific types of activity can take place, preventing new competitors from entering.
The Commerce Commission has recognised the anticompetitive role of town planning and consenting processes in successive market studies.
That problem would be best addressed through resource management system reform. However, the Commerce Act could also be strengthened to penalise anticompetitive use of planning processes.
What do I mean? Let’s take a very real example.
In November, McDonald’s tried opening a restaurant in Wanaka. The company had purchased land on which they wished to set it up. If they could not get permission to open at that site, the new Three Parks retail development was a potential alternative site.
Three Parks developer Willowbank objected to the development on the site McDonald’s had purchased. Willowbank also encouraged McDonald’s to pursue a tenancy with them should their consent application be unsuccessful.
Consenting hearings are meant to ignore submissions from trade competitors. But objecting to a new development to increase the rental income at your own development was treated as fair play. It really should not be.
The Commerce Act could usefully be amended to sharply penalise, and perhaps even criminalise, the anticompetitive use of land use and other permitting systems.
We have a regime that criminalises some kinds of cartel behaviour but seems to allow what happened in Wanaka. One hears many whispered stories of liquor outlets funding surrogates to object to one another’s licensing applications. A criminal penalty regime could provide deterrence when it is hard to detect the activity.
We don’t know what will replace the Resource Management Act. But any replacement would work better if the Commerce Act set sharp penalties for using it to anticompetitive effect.
The Commerce Act aims to promote competition. However, many other Acts and regulatory regimes have substantial anticompetitive effects and the Commerce Commission rarely weighs in on those.
Let’s take another recent example.
A community pharmacy must hold an Integrated Community Pharmacy Services Agreement before being allowed to dispense funded medicines. Getting one of those is easier if you show you are in an area with unmet needs. Applicants must detail the number of pharmacists already in the area, and document their locations.
And so, a Bargain Chemist that opened in Upper Hutt in 2022 remains unable to dispense funded medicines, limiting competition for the four existing pharmacies in the area.
The Commerce Act could provide an explicit role for the Commerce Commission in assessing regulation. It could also let businesses appeal for a competition review of existing regulation to determine whether it works to anticompetitive effect.
Meanwhile, the Crown Exception to the Commerce Act could be substantially narrowed or even abolished. Crown activities that lessen competition are no less bad than those of private businesses. Activities authorised by the Crown, like occupational licensing regimes, should undergo regular Commerce Commission reviews to ensure that they have not turned into cartels.
Unfortunately, none of these obvious and substantial hindrances to effective competition are included in the targeted review.
Instead, the review focuses on minor aspects of merger control. It also wants to investigate the merits of industry codes which, if not carefully monitored by a vigilant Commission, could quickly become cartel enforcement mechanisms.
The Review is sending us searching for a wallaby in a paddock overrun by rabbits and possums.
The Initiative’s submission will encourage MBIE, leading the Review, to buy some .22 ammunition and to sharpen its aim.
There are targets worth aiming at.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
But no.
You have to go looking for that wallaby.
Commerce Minister Andrew Bayley has announced a targeted review of the Commerce Act. Its aim is to promote competition by checking whether the Act is fit for purpose.
It is a worthy aim. There are targets that obviously need attention.
Instead, the review is largely sending us on a wallaby-hunt.
It isn’t that the Review is pointless. The suggestion to review the Commerce Commission’s governance is sensible. As the Initiative has long argued, it is not fit for purpose.
But much of the Review aims at minor problems on a range overrun with very large problems.
Let’s consider the large problems first.
New Zealand’s land use planning system enforces de facto cartels. It sharply restricts the number of locations in which specific types of activity can take place, preventing new competitors from entering.
The Commerce Commission has recognised the anticompetitive role of town planning and consenting processes in successive market studies.
That problem would be best addressed through resource management system reform. However, the Commerce Act could also be strengthened to penalise anticompetitive use of planning processes.
What do I mean? Let’s take a very real example.
In November, McDonald’s tried opening a restaurant in Wanaka. The company had purchased land on which they wished to set it up. If they could not get permission to open at that site, the new Three Parks retail development was a potential alternative site.
Three Parks developer Willowbank objected to the development on the site McDonald’s had purchased. Willowbank also encouraged McDonald’s to pursue a tenancy with them should their consent application be unsuccessful.
Consenting hearings are meant to ignore submissions from trade competitors. But objecting to a new development to increase the rental income at your own development was treated as fair play. It really should not be.
The Commerce Act could usefully be amended to sharply penalise, and perhaps even criminalise, the anticompetitive use of land use and other permitting systems.
We have a regime that criminalises some kinds of cartel behaviour but seems to allow what happened in Wanaka. One hears many whispered stories of liquor outlets funding surrogates to object to one another’s licensing applications. A criminal penalty regime could provide deterrence when it is hard to detect the activity.
We don’t know what will replace the Resource Management Act. But any replacement would work better if the Commerce Act set sharp penalties for using it to anticompetitive effect.
The Commerce Act aims to promote competition. However, many other Acts and regulatory regimes have substantial anticompetitive effects and the Commerce Commission rarely weighs in on those.
Let’s take another recent example.
A community pharmacy must hold an Integrated Community Pharmacy Services Agreement before being allowed to dispense funded medicines. Getting one of those is easier if you show you are in an area with unmet needs. Applicants must detail the number of pharmacists already in the area, and document their locations.
And so, a Bargain Chemist that opened in Upper Hutt in 2022 remains unable to dispense funded medicines, limiting competition for the four existing pharmacies in the area.
The Commerce Act could provide an explicit role for the Commerce Commission in assessing regulation. It could also let businesses appeal for a competition review of existing regulation to determine whether it works to anticompetitive effect.
Meanwhile, the Crown Exception to the Commerce Act could be substantially narrowed or even abolished. Crown activities that lessen competition are no less bad than those of private businesses. Activities authorised by the Crown, like occupational licensing regimes, should undergo regular Commerce Commission reviews to ensure that they have not turned into cartels.
Unfortunately, none of these obvious and substantial hindrances to effective competition are included in the targeted review.
Instead, the review focuses on minor aspects of merger control. It also wants to investigate the merits of industry codes which, if not carefully monitored by a vigilant Commission, could quickly become cartel enforcement mechanisms.
The Review is sending us searching for a wallaby in a paddock overrun by rabbits and possums.
The Initiative’s submission will encourage MBIE, leading the Review, to buy some .22 ammunition and to sharpen its aim.
There are targets worth aiming at.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
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