Imagine that the government announced a review of the dice.
When you last looked at the dice, it appeared that someone drilled a hole in one side of each of them.
You might think that a review of the dice would look at ways of refilling the holes and making sure the weights were right.
If the government instead decided to measure the depth of each of the dots and carefully weigh the paint while saying nothing about the drill holes, it might be cause for concern.
The Minister of Finance has made competition a central pillar of the government’s growth agenda.
The Commerce Act needs to be fit for that purpose.
The Act already prohibits a lot of cartel-style activities and other conduct deemed to have anticompetitive effects. It sets rules around mergers.
But there are a few obvious drill holes. Things that have substantial anticompetitive effect, deliberately or unintentionally, which aren’t covered by the Act.
Successive market studies have pointed to land use planning issues. When towns do not zone many sites for things like large-footprint supermarkets or retail building suppliers, you might expect problems.
The Act prohibits anticompetitive conduct like buying up the small number of sites zoned for your kind of business, adding a covenant that prohibits competitors from setting up shop there, and then selling them on.
But nothing guards against restrictive zoning rules that make that kind of conduct possible in the first place. It would be impossible to buy up and covenant a whole city. But if the town planners have only allowed your competitors to build in a small number of sites – well, the job may be done for you, with or without covenants.
Regulatory regimes can also have sharply anticompetitive effects. But reviews of those regimes do not typically seriously consider their effects on competition. The benefits of a regime could outweigh the harm to competition, and it could be that there really is no better way doing things. But not necessarily.
Let’s take a simple example. If you want to open a pharmacy, you must either be a licensed pharmacist or partner with one. You do not need to be a mechanic to open a garage. You could just hire a mechanic. But you must be a pharmacist if you want to own a pharmacy.
It gets worse. If you want to dispense prescriptions for funded medicines, you’ll need a contract with the government. That’s fair enough. But the government prioritises applications from pharmacies in areas that are ‘underserved’. If you want to open a pharmacy next door to a few existing ones, because you think you can deliver better services for your community, your application will be at the bottom of the pile.
It isn’t hypothetical. A Bargain Chemist in Upper Hutt has been in this unenviable position since it opened in 2022.
Nobody is seriously checking whether the benefits sought by these regimes can be achieved with less harm to competition.
Other regulatory regimes facilitate anticompetitive conduct. Look at what happened with the McDonald’s application in Wanaka. The owner of the potential McDonald’s had found a willing site and wanted to build. The owner of a nearby retail development objected to the rezoning while offering its own site as an alternative. The objector wanted to be McDonald’s landlord.
The anticompetitive objection isn’t likely to have changed the planners’ decision. They noted concerns about the view as being most important. But any sane system would have prohibited that kind of anticompetitive conduct.
There are obvious things that could be done to plug the holes in the Commerce Act.
Part Two of the Act lists a host of restricted trade practices – things that have anticompetitive effects and are sharply restricted or prohibited. Why not add one? It should not be legal to use a regulatory process for an anticompetitive purpose. One addition to the Commerce Act could have benefits across many areas.
Similarly, if the Commerce Commission finds that a regulatory regime hurts competition and consumers, it should be able to trigger a regulatory review. The Act could enable the Commission to make those calls and ensure that those calls have consequences.
Everybody knows that the Crown Exception in the Commerce Act needs to be updated. Or at least everybody who attended last year’s Competition Law and Policy Institute workshop, where draft legislation fixing the problem was discussed. The exception is too broad, too vague, and does not test whether each exception is really needed.
None of these problems were touched in the “targeted” review of the Act.
Instead, MBIE’s review focused on secondary and procedural matters. None of it will help with the government’s aim of improved economic growth through strengthened competition. And some of the proposals would do more harm than good.
The dice don’t have to be loaded.
But everybody knows they will continue to be.
I hope that everybody is wrong.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
If the government instead decided to measure the depth of each of the dots and carefully weigh the paint while saying nothing about the drill holes, it might be cause for concern.
The Minister of Finance has made competition a central pillar of the government’s growth agenda.
The Commerce Act needs to be fit for that purpose.
The Act already prohibits a lot of cartel-style activities and other conduct deemed to have anticompetitive effects. It sets rules around mergers.
But there are a few obvious drill holes. Things that have substantial anticompetitive effect, deliberately or unintentionally, which aren’t covered by the Act.
Successive market studies have pointed to land use planning issues. When towns do not zone many sites for things like large-footprint supermarkets or retail building suppliers, you might expect problems.
The Act prohibits anticompetitive conduct like buying up the small number of sites zoned for your kind of business, adding a covenant that prohibits competitors from setting up shop there, and then selling them on.
But nothing guards against restrictive zoning rules that make that kind of conduct possible in the first place. It would be impossible to buy up and covenant a whole city. But if the town planners have only allowed your competitors to build in a small number of sites – well, the job may be done for you, with or without covenants.
Regulatory regimes can also have sharply anticompetitive effects. But reviews of those regimes do not typically seriously consider their effects on competition. The benefits of a regime could outweigh the harm to competition, and it could be that there really is no better way doing things. But not necessarily.
Let’s take a simple example. If you want to open a pharmacy, you must either be a licensed pharmacist or partner with one. You do not need to be a mechanic to open a garage. You could just hire a mechanic. But you must be a pharmacist if you want to own a pharmacy.
It gets worse. If you want to dispense prescriptions for funded medicines, you’ll need a contract with the government. That’s fair enough. But the government prioritises applications from pharmacies in areas that are ‘underserved’. If you want to open a pharmacy next door to a few existing ones, because you think you can deliver better services for your community, your application will be at the bottom of the pile.
It isn’t hypothetical. A Bargain Chemist in Upper Hutt has been in this unenviable position since it opened in 2022.
Nobody is seriously checking whether the benefits sought by these regimes can be achieved with less harm to competition.
Other regulatory regimes facilitate anticompetitive conduct. Look at what happened with the McDonald’s application in Wanaka. The owner of the potential McDonald’s had found a willing site and wanted to build. The owner of a nearby retail development objected to the rezoning while offering its own site as an alternative. The objector wanted to be McDonald’s landlord.
The anticompetitive objection isn’t likely to have changed the planners’ decision. They noted concerns about the view as being most important. But any sane system would have prohibited that kind of anticompetitive conduct.
There are obvious things that could be done to plug the holes in the Commerce Act.
Part Two of the Act lists a host of restricted trade practices – things that have anticompetitive effects and are sharply restricted or prohibited. Why not add one? It should not be legal to use a regulatory process for an anticompetitive purpose. One addition to the Commerce Act could have benefits across many areas.
Similarly, if the Commerce Commission finds that a regulatory regime hurts competition and consumers, it should be able to trigger a regulatory review. The Act could enable the Commission to make those calls and ensure that those calls have consequences.
Everybody knows that the Crown Exception in the Commerce Act needs to be updated. Or at least everybody who attended last year’s Competition Law and Policy Institute workshop, where draft legislation fixing the problem was discussed. The exception is too broad, too vague, and does not test whether each exception is really needed.
None of these problems were touched in the “targeted” review of the Act.
Instead, MBIE’s review focused on secondary and procedural matters. None of it will help with the government’s aim of improved economic growth through strengthened competition. And some of the proposals would do more harm than good.
The dice don’t have to be loaded.
But everybody knows they will continue to be.
I hope that everybody is wrong.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
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