Market Studies and Section 43

My column in the Herald last week, ungated here, on the Commerce Commission's market studies powers and their ability to look into previously forbidden places.

I wish they'd have just kept my title: The Spice of Competition Must Flow. 

In Frank Hebert's classic Dune series, the Bene Gesserit sisterhood's supernatural abilities extended only so far. There was a place where their powers could not see – a place that repelled and terrified them.

Over thousands of years of careful influence over royal marriages, the Bene Gesserit sought the birth of the Kwisatz Haderach – the one able to look where they could not and shorten the way.

The Commerce Commission's relatively new market studies powers may not quite make them the Kwisatz Haderach.

Nevertheless, there are parallels.

The Commerce Commission has long been able to pursue anti-competitive activity. Cartels are illegal. Some cartel conduct can draw criminal penalties.

Anti-competitive activity running short of cartels is also prohibited.

But there has been a place the commission has not been able to look.

Section 43 of the Commerce Act exempts activities authorised by government. If a law or Order in Council authorises an activity, that activity is allowed even if it appears to be anti-competitive.

There is some sense to the Section 43 exemption if you think that government generally works well. Parliament and the ministries, at least in theory, will have weighed the public interest and considered any effects on restraint of trade when setting laws and regulations.

A statutory regime may have anti-competitive effects but still be desirable on balance.

In an ideal world, ministries overseeing these regulatory regimes would be running rolling reviews to ensure the regimes continue to be beneficial.

But successive governments have done an abysmal job in ensuring that regulatory and statutory regimes remain fit for purpose.

Reviews of regulatory regimes, when undertaken, tend to have a narrow focus. They do not look at how a regime intertwines with other agencies' regulations and practices and its effects on competition.

Statutory regimes have been the place where the Commerce Commission has been unable to look.

I conclude:

In both its review of grocery retail and building materials, the commission turned its gaze to the place it had not previously been able to look: statutory regimes exempted by Section 43 that combine to thwart real competition. And it found things in serious need of remedy.

Like Dune's Kwisatz Haderach, the commission's market studies authority is powerful and just a bit dangerous.

The commission's very detailed work documenting what had been well understood by sector observers at a high level was not without cost.

Supermarket executive teams would have been tied up for months responding to requests for information while also trying to run supermarkets during a pandemic.

Some future ill-intentioned minister could direct the commission to undertake market studies on areas he wishes to punish. The study process itself imposes a substantial cost, regardless of its findings.

The commission would do well to provide its minister with a list of areas most in need of future investigation. And top of that list should be the places where it previously has been barred from action by Section 43.

Conditions of competition in the provision of medical services would make for a superb market study.

Earlier this year, it was reported that some 150 foreign-trained doctors living in New Zealand have been unable to practice because the rules require them to take up a supervised training position first.

Those positions do not exist for foreign-trained doctors.

The simplest explanation for regulations setting impossible conditions is that the medical professionals who help to set the standards wish to prevent competitors from entering the market.

If we are to have a Kwisatz Haderach, best it be directed in beneficial ways. Let the spice of competition flow.

I chose not to elaborate on the risks of jihad and war that could engulf the known universe, in part because the Commission is only resourced to do one of these a year.