How effective are market studies, anyway?

Friday, 30 June 2023

Commentators say there is limited evidence that Commerce Commission market studies make a difference.

The commission is commencing work on its latest study, into the banking sector. It follows earlier market studies into petrol, building materials and supermarkets.

Economist Shamubeel Eaqub said the studies had not had a visible impact yet. “But competition pressures wouldn’t be resolved immediately.”

NZ Council of Trade Unions economist Craig Renney said it was hard to tell how effective the studies were, because there was no clear counterfactual to compare the outcomes to.

Profits had increased in recent years across a range of businesses, he said.

He said it was likely that the threat of Commerce Commission intervention had a positive effect on pricing and businesses’ willingness to extract extra value from their customers.

Commerce Commission chair John Small told media it was “fashionable” to denigrate the market studies programme.

“When I look back on the first three studies, I do so knowing that none of these sectors had been subject to serious competition policy analysis in 30 years.

“Our market studies aren’t a quick fix. They are intended to take a detailed look at a sector, and if there are issues, propose remedies that will bring about fundamental change with sustainable, enduring benefits, and not just for Kiwi consumers.”

Building Industry Federation chief executive Julien Leys said it was up to the Government to turn recommendations into change.

With the building supplies study, there had already been some changes, and the Government had put a number of the recommendations into play, he said.

“One is the review of the building consent system, which is looking at how to improve concerns around times and costs, and address some of the barriers to competition for products.”

Another was work on how to get a broader range NZ building code compliant products onto the market, so there was more choice around what could be used, he said.

“Work on this started with the Gib crisis when lots of people were looking for alternative products, and it led to the Critical Materials Taskforce.

“But it has increased with the Commission’s recommendation that allowing more products to be used benefits consumers.”

Now, a lot depended on educating designers, builders, and BCAs, who were used to seeing one type of product specified for a market, that using alternative, compliant products was acceptable, Leys said.

“Will all nine recommendations be acted on? Possibly not. But of the nine, it is the recommendation around allowing more new products that will have the biggest impact long-term.”

But Simplicity Living managing director Shane Brealey said the impact of the commission’s study would range from very little to none.

The apathy of the industry response to the commission’s request for submissions illustrated that people were operating in a small, tight sector.

“The market is captive to a few, dominant players, and people are more concerned with preserving their business, than they are about speaking up to improve the industry.”

Despite the study’s recommendations, the industry was now back to where it was pre-Covid with the monopolies and rebate systems still in place, he said.

Dave Bodger, outgoing chief executive of petrol station chain Gull, said the market study into petrol had resulted in overcorrection.

“I didn’t think the market study was needed and the solutions were obvious. The solutions in the study were terminal gate pricing and opening up access. Gull had been advocating that for 24 years. That was the way to open more competition. The market study led to a whole lot of ancillary issues.

“If the whole market study and legislation that flowed from it was a metre long, you could have solved 90cm of that just with terminal gate pricing.”