Competition package may be tougher pill for ACT than Labour to swallow

Saturday, 21 December 2024

ANALYSIS: Could we see a cross-party consensus emerge around an overhaul of competition law?

If the worst that critics can say about a government policy is that it should have come sooner or doesn’t go far enough, that’s usually a sign a minister is on to a worthy winner.

Changes that Commerce Minister Andrew Bayly has proposed making to competition law and the Commerce Commission appear to fall into that category.

All that is needed to turn the mooted reforms into a bigger success would be for Science Minister Judith Collins to now come with a machine to turn back time.

Bayly’s proposals should see takeover law beefed-up to stop businesses gradually sewing-up markets through small acquisitions, while giving the commission new powers to set conditions on mergers and devise industry codes.

The commission itself appears to be in for a shake-up, with Bayly advising the Cabinet he is keen to ensure it has “the commercial expertise required to promote good commercial outcomes”.

The arrangement that allows commissioners to make the big decisions while reporting to themselves as a board looks set to get a good look-over.

Bayly couldn’t be accused of being a populist and his reforms don’t appear primarily driven by a desire to appease consumers who feel ripped off by big businesses, although that might be one happy upshot.

Rather, he sold his reforms to Cabinet, as an “opportunity to review New Zealand’s competition settings to lift productivity”.

He cited the OECD’s long-standing concern that a lack of competition in a variety of markets is hampering economic growth.

Given the reforms would mean some new rules, he needed to tip-toe around the ACT Party’s war on red tape and regulation.

Arguing that a stitch in time would save nine, seems to be the way Bayly scrapped past that political thorn.

His Cabinet paper promoted the competition reset as an opportunity to “avoid the need for future complex regulatory interventions after harm to competition and the economy has already been done”.

Labour commerce spokesperson Arena Williams is far from hostile to the proposals – particularly the curb on so-called “roll-up” acquisitions that can see lots of small businesses bundled up into large conglomerates.

“It's actually something I'm really keen on and I think could be going in a really good direction,” she says.

Williams is concerned by a reduction in competition in the bus market following acquisitions by Richies and “a very entrenched duopoly” between Enviro and Waste Management after they bought smaller regional players in the waste management industry.

But she also worries the reform package may be missing a piece, in failing to give the commission sufficient powers to take on existing monopolies.

“The three new powers that he's introducing are useful, but they don't go far enough to addressing the natural monopolies.

“Tools to investigate ‘price gouging’ seem to me to be the next step and I'm worried that he won't get another opportunity to have another go.”

It is arguable though that the specific interventions needed in problem industries differ too much to make a generic power under the Commerce Act much chop.

There may be no one-size-fits-all approach to restoring more competition in markets where it has already been badly eroded.

Williams herself accepts “industry-by-industry intervention is what's needed to tackle some specific issues with the cost of living, particularly in the supermarket and banking sectors”.

Competition lawyer Andy Matthews, of Matthews Law, argues that is what the existing system of “market studies” enabled by the former government is for.

In the broadband market, competition policy involved the Government supporting of the roll-out of ultrafast broadband and strong-arming Telecom to split into two.

In the banking market, in the Government’s mind, it currently appears to involve slightly beefing up Kiwibank and trying to persuade the banks to speed up support for open banking under the threat of some undisclosed sanctions.

In the supermarket sector, there are signs that the commission’s thinking may be that the best medium-term hope for more competition might involve loosening Foodstuffs’ operational controls over its franchised stores.

And in the power industry – who knows.

The most convincing idea was arguably Labour’s 2013 plan for a monopsony (monopoly buyer) to purchase electricity from new and existing power plants on behalf of power users at a fair price.

Matthews expects the Commerce Act reforms would change how businesses behave and the says the new ability the commission could have to attach conditions on takeovers stipulating how merged firms would need to behave is long overdue.

But he notes making decisions on matters such as industry roll-ups will require delicate judgment from the commission, so its “people” as well as its governance arrangements and rules are important.

There can be good reasons for small businesses selling into a larger parent organisation and becoming more like a franchise, as it can lead to efficiencies, he notes.

“You shouldn't automatically say they're anti-competitive.”

Law firm Russell McVeagh describes the review as heralding the most significant changes to competition law in more than 20 years.

Otago University associate professor Edward Willis says the proposals seem relatively sensible but, in his view, are “at the margins”.

“I don’t think merger approval practice will change significantly as a result of the proposed changes, for example, particularly as the commission has been quite forthright on the basis of the current test,” he says.

But faint praise is still praise. For a minister sitting outside Cabinet and down the ranks of an often polarising administration, Bayly is continuing to build bridges make himself useful.