Editorial: No contest

By The Listener In Editorial

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Having allowed stoats, ferrets and wild cats to invade our native bush, we are aggrieved that they predate on weaker creatures. The same failure of logic afflicts our attitude to the supermarket duopoly, so ably highlighted by Labour MP Shane Jones. Under the Commerce Act, we have allowed two strong companies to dominate the grocery market. We should hardly be surprised if, in this ideal habitat for monopolistic behaviour, they turn predator against the much weaker companies that supply their products.

Now we expect the Commerce Commission, which allowed this predation to develop unchecked, to fix the problem.

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Fortunately, after feeble attempts by rival politicians to paint this as mere grandstanding by Jones, Finance Minister Bill English has foreshadowed changes to the commerce legislation. Productivity Commission chairman Murray Sherwin has also signalled the need for an update.

It won’t be an easy or quick fix. After intensive study of the same issues by Australia’s competition regulators, only tiny steps have so far been devised to loosen the supermarket chains’ stranglehold. The legal definitions of fair trading are being overhauled and marketing weaponry, such as the use of petrol discount vouchers to manipulate shoppers, is being curtailed.

The risk, critics will say, is that such restrictions could result in higher prices. What we need here is a rigorous wood-for-the-trees exercise: a recognition that any discount comes at a price – a price the shopper may be unaware of, but which in the end may impact adversely on the whole economy.

That makes the indignation of Business New Zealand chief Phil O’Reilly at Jones’s crusade the more disappointing. O’Reilly’s own constituency is vastly more hurt than advantaged by the development of niche monopoly environments in markets such as that enjoyed by the supermarkets. He seems to overlook the risk of suppliers going under, not because of their own failure, but because of a flawed market.

Grocery suppliers are being forced to pay ever steeper fees for shelf space. Such arrangements may seem to deliver low-price benefits to the consumer, but because this occurs in an uncompetitive environment, with supermarkets arbitrarily deciding how much profit they should be entitled to on each line, consumers don’t know whether grocery prices are as low as they might be. The market is, in a sense, less a market than a dictatorship.

It’s understandable that Countdown, the Australian-owned supermarket chain subject to Jones’s allegations, resents being singled out. It is almost certainly acting within the law and behaving as many other companies would, given the chance.

It’s important to recognise, too, that despite Jones’s war cry against pillaging Australians, some of this country’s most diligent enforcers of monopoly power operate in the name of the public. Publicly owned Christchurch Airport is currently threatening the business of a company providing cheaper parking than its own, while Auckland Airport – partly owned by Auckland Council – has reportedly imposed stricter luggage-carrying rules on taxis than those specified by law, meaning travelling parties have to take more than one taxi and the airport company can clip the ticket more often.

Local councils charge at will for their services, including rates. Now New Zealand Post staff say they feel pressure to be less efficient at delivering mail, so as to drive customers to its premium Fastpost service. These issues suggest we have learnt nothing from the global financial crisis (GFC), which should have taught us that commercial profitability cannot be treated like the opium dragon, pursued for an ever greater fix. In some years profits will go up, in others they will remain static or decline. To attempt to satisfy arbitrary profit expectations by finding new ways to force customers to pay, without providing benefits in exchange, is not just unethical, but perilous. It puts us back on the road to the Wild West days of the 1980s, when company share prices bore no relationship to their intrinsic value; and to the GFC, when an inane sense of entitlement to profit growth, no matter the market realities, produced a slew of worthless financial instruments.

Jones’s crusade against Countdown has focused attention on the potential for abuse of power in just one business sector, but there are plenty of others. The need to update competition laws has never been more urgent.

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2 Responses to “Editorial: No contest”

  1. Concerned Mar 7 2014, 8:18pm

    "English has foreshadowed legislation and Productivity Commission chairman has also signalled the need for an update." Here's my prediction; nothing substantial will change. Why ? There's big money interested in maintaining as near to the status quo as possible. There will be tinkering but you'll be able to drive a bulldozer through the weasel clauses.
    Report Report
  2. winston moreton Mar 7 2014, 10:52am

    The biggest monopoly, supplier of services is the Crown. It too is subject to the Act although exempt from penalties. The Passport Service is the most rapacious example. Passport's for a truncated five year period (four and a half in practice). One's own personal information, such as a recent copy of your property title, costs $15.00 and you do the work yourself. These services set up with tax payer funds now generate millions for HMQ plus GST.
    They are monopolistic services . They deserve Commerce Act scrutiny.
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