Mr Roger Kerr, executive director of the New Zealand Business Roundtable, recently argued that "competition law zealotry" was damaging the New Zealand economy (ODT, March 13, 2009). The truth is the exact opposite.
Modern American-style competition law, from the time it was introduced in 1986, was recognised as a key part in the Rogernomics revolution.
As the economy was deregulated, a robust competition law (or anti-trust law, as Americans call it) was considered a vital component of this change.
The Commerce Act would ensure, as New Zealand moved away from government regulation of markets, that situation would not be replaced by anti-competitive behaviour by powerful individual companies or groups of such firms.
The object of the Act is sound: "to promote competition in markets for the long-term benefit of consumers within New Zealand". It aims to stop businesses exploiting their market power to the detriment of their industry rivals and customers and at the expense of the wider consuming public. Most importantly, the Act's bedrock premise is that competition generally leads to efficiency.
Promoting competition (not efficiency) as the primary goal of the Act kills several birds with one stone. Competition is the principal spur to allocative and productive efficiency and most significantly (as economists tell us) dynamic efficiency - the optimal rate of innovation and technological progress.
Innovation is the key driver to sustained productivity growth (and long-term economic prosperity), and competition, in turn, is the main stimulant to innovation.
We do not, argues Harvard University's Michael Porter, do ourselves a favour by being soft on domestic firms and relaxing anti-trust law, for firms not required to compete at home seldom compete effectively in the global market.
Competition law also indirectly serves the goal of a redistributing wealth. Standard economic models explain that a transfer of wealth occurs when monopoly power is exercised. By paying high prices for goods and services, consumers transfer their dollars to the pockets of the monopolising firms. Competition law facilitates, in a modest fashion, a more even distribution of wealth.
There is really no basis to the charge that the Act is impeding efficiency or damaging the economy. Furthermore, the Act provides mechanisms for those few occasions when competition does not generate efficient outcomes.
If firms believe that their anti-competitive practice or takeover is efficient, they can apply to the Commerce Commission for an author-isation. This will be only granted if the businesses can demonstrate the public benefits (including efficiencies) from their conduct outweigh the harm to competition. Few firms have ever satisfied this test.
For "natural monopoly" industries (such as railway networks where there can only sensibly be one efficient operator), the Commerce Act subjects these to price control. Admittedly, the Commerce Commission struggles to come up with a satisfactory way of determining what is a reasonable price a monopolist may charge.
Price control is a very tricky exercise. But here we are not, strictly speaking, talking about competition law (general laws enforced through the courts) but regulation by a bureaucratic agency.
The real objection industry moguls and lesser mortals have against competition law is not its supposed injury to the economy, but the fact that it might thwart business as usual - such time-honoured practices as cartels, boycotting new entrants, predatory pricing and gobbling up newcomers by means of pre-emptive takeovers.
Take the wood preservative chemical cartel. The courts have recently levied hefty pecuniary penalties (fines) totalling $8.3 million against the two companies that colluded for four years to maintain prices above competitive levels in a $20 million per annum market.
As for boy-cotting, there was the case of the Invercargill ophthalmologist who conspired to prevent two Australian ophthalmologists from performing a backlog of cataract surgery in Southland. The harm here was not just the fact that Southland Health lost the benefit of the costs of a cataract operation dropping from $1100 to $675, but that the arrival of the ophthalmologists would have considerably reduced waiting times for both existing and future patients.
Last year, the commission successfully blocked the acquisition of The Warehouse by the two supermarket chains, Foodstuffs (New World, Pak'n Save) and Woolworths (Countdown, Fresh Choice). The Warehouse had commenced operating as a "supercentre" - selling supermarket items alongside its usual merchandise - in several North Island locations.
Foodstuffs and Woolworths were prevented from acquiring the only new entrant to the supermarket industry for the last 20 years.
There is insufficient space to recount the successful prosecution of Caltex, Shell and Mobil in 1996 for colluding to eliminate free car washes with petrol purchases, the fining of Auckland Toyota dealers for price-fixing in 2001, or the prevention by the commission in 2003 of the Air New Zealand/Qantas merger.
And one can only ponder what consumers have lost when the commission failed to stop the Pink Batts manufacturer from successfully squeezing out a small innovative entrant (making a 100% wool product) from the insulation market.
Unfortunately, the Privy Council viewed Carter Holt's monopolising behaviour in the insulation field as benign, just as it had earlier failed see Telecom's refusal to connect Clear to Telecom's telephone network on reasonable terms was anti-competitive.
From businesses' perspective - if they would only see it - competition law is actually the lesser evil. The main alternatives to the problem of monopoly are the unpalatable approaches of yesteryear: nationalisation of industry or intrusive and complex direct government regulation.
The Commerce Commission should not be lambasted for fulfilling the very task it was set up to do: to enforce the law effectively. It is unsurprising that big business dislikes vigorous policing of the rules of the competition game. A poacher would hardly welcome a more diligent gamekeeper.
It is a sign that New Zealand competition is at last operating effectively that the Business Roundtable is feeling the heat.
With the very real prospect of cartel conduct being criminalised and price-fixing executives spending time in Her Majesty's prisons, one may expect a few more cries in the days to come.
- Rex Ahdar is a professor in the Faculty of Law at the University of Otago.
