Instead, we propose hitting the mark by opening the market. We can create a mechanism giving new entrants a single, timely decision with reliable outcomes, allowing them to develop supermarkets on multiple sites across the country.
It sounds simple, but we have been confidently following obscure signposts in grocery policy. Consider driving through dense fog while following clear road signs. Each marker reassures you are headed correctly - they look authoritative, match your direction, and your conviction grows with each mile. But then the fog lifts and you discover you have been following outdated signs, circling for hours.
Similarly, New Zealanders observe our grocery sector has two major supermarket chains. Conventional understanding tells us this must be exploitative; their profits are substantial, so we are told. The signs point toward one straightforward solution: forcefully change market structure to increase competitors.
But recent industry data suggests we may have been navigating through fog. Recall that GST applies to food in New Zealand. Once tax differences are removed, PAK'nSAVE prices may well beat major international competitors. Woolworths reports after-tax losses and margins in the bottom quartile globally. Those signposts pointing to ‘excessive profits driving high prices’ now look suspect.
Recognising we are navigating through fog demands solutions that work without perfect diagnosis. This connects to insights from 1880s American economists who understood competition not as a particular market structure, but as ‘a process of open rivalry.’ As economist George Gunton argued, “if the gates of admission are always open, then the economic effect is the same as if the new competitor were already present.”
Consumers need frameworks that discipline incumbent behaviour regardless of market structure. Even expanding to three competitors risks three rather than two complacent players, knowing they will not be challenged. Conversely, if the market is competitive, adding another by force will not change prices but could pass costs to consumers.
Our ‘Fast-track supermarket entry and expansion omnibus bill’ promotes market openness with credible threat of entry. Rather than mandating specific structures, it removes barriers preventing serious challengers from testing whether they can succeed. Market openness acts like clearing fog, revealing the actual competitive landscape rather than relying on assumptions.
The clearest path forward emerges not from engineering market structures, but from ensuring markets can discover optimal arrangements themselves.
Benno is a Research Fellow at The New Zealand Initiative with a wide range of policy interests. This article was first published HERE
It sounds simple, but we have been confidently following obscure signposts in grocery policy. Consider driving through dense fog while following clear road signs. Each marker reassures you are headed correctly - they look authoritative, match your direction, and your conviction grows with each mile. But then the fog lifts and you discover you have been following outdated signs, circling for hours.
Similarly, New Zealanders observe our grocery sector has two major supermarket chains. Conventional understanding tells us this must be exploitative; their profits are substantial, so we are told. The signs point toward one straightforward solution: forcefully change market structure to increase competitors.
But recent industry data suggests we may have been navigating through fog. Recall that GST applies to food in New Zealand. Once tax differences are removed, PAK'nSAVE prices may well beat major international competitors. Woolworths reports after-tax losses and margins in the bottom quartile globally. Those signposts pointing to ‘excessive profits driving high prices’ now look suspect.
Recognising we are navigating through fog demands solutions that work without perfect diagnosis. This connects to insights from 1880s American economists who understood competition not as a particular market structure, but as ‘a process of open rivalry.’ As economist George Gunton argued, “if the gates of admission are always open, then the economic effect is the same as if the new competitor were already present.”
Consumers need frameworks that discipline incumbent behaviour regardless of market structure. Even expanding to three competitors risks three rather than two complacent players, knowing they will not be challenged. Conversely, if the market is competitive, adding another by force will not change prices but could pass costs to consumers.
Our ‘Fast-track supermarket entry and expansion omnibus bill’ promotes market openness with credible threat of entry. Rather than mandating specific structures, it removes barriers preventing serious challengers from testing whether they can succeed. Market openness acts like clearing fog, revealing the actual competitive landscape rather than relying on assumptions.
The clearest path forward emerges not from engineering market structures, but from ensuring markets can discover optimal arrangements themselves.
Benno is a Research Fellow at The New Zealand Initiative with a wide range of policy interests. This article was first published HERE
3 comments:
The NZ Initiative singing the praises and competitiveness of the existing duolopoly.
Well, strike me down with a feather.
On holiday in Sydney, Westgold butter is $A6.50, New World Wellington price $10. Australia doesn’t have GST on butter but after factoring that in plus the exchange rate, the NZ price is at least $1.20 higher than Australia. Someone is ripping us off and probably not the supermarkets.
News here in Sydney is that Australians are in for a big price rise in dairy products because of “droughts and flooding rains”.
Plus consumers here believe they are being ripped off by the supermarkets. Just like NZ, every 3 months or so there’s media or government hype on rapacious supermarkets by the same people who lied to you through Covid.
Believe them at your peril
A simple Yes/No question for NZI:
Do you support Amazon's entry into NZ?
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