Tuesday, 18 January 2022

Morning roundup

The morning's worthies! And a couple shockers too. 

Thursday, 13 January 2022

Sandwich cartels

A typically superb piece from Colby Cosh, looking at the real cartel villains standing between him and a decent sandwich. The Canadian Dairy Cartel strikes again. So, naturally, antitrust authorities chase after bread retailers instead.

My local grocer, without exaggeration, must now offer 40 or 50 different bread options perfectly suitable for sandwiches. There’s a mini-universe of rye breads now, and different varieties of sourdough. The whole-grain bread that children in my age cohort associated instinctively with disappointment has improved a thousand per cent. The best of these products would have seemed decadent and impossibly European if I had been handed them at age 11.

So, very well, grocers: I guess if some people are angry with you about an extra 12 cents on a loaf of Wonder Bread, or however much you’ve been clipping off unlawfully, you have no choice but to suffer the abuse and present a defence in court. I consider us square. The bread available to me as an urban shopper has gotten steadily, constantly better. Canadians can feed foreign guests without humiliation.

Unless, of course, someone intends to butter the bread. When it comes to supply-managed dairy products, price-fixing is not an abomination crying to God for vengeance, but the official long-standing policy of a long series of Canadian governments. As a result, it takes a wave of public outrage for our dairy oligopoly to rediscover the concept of quality control . Serious bakers have to engage in bootlegging to make a half-decent croissant, and our supermarket cheese aisles remain monuments to mediocrity and failure. And meanwhile, as you will have read in the Financial Post on Friday , our federal government is trampling U.S.-Canada free trade in defence of that same dairy cartel. This is, as of last Tuesday, the official finding of the dispute-resolution panel that oversees the continental USMCA trade zone. If you drill down into the dispute, you cannot help being shocked by the way Canada’s representatives have conducted themselves. 

Canada's been playing dodgy with American access to protected Canadian markets. 

Small American makers of cheese and butter thought they might have a chance to enter Canadian retail markets (free trade!), but we then did just what we promised not to do: we explicitly assigned most of the rising import quota to our own dairy processors, guaranteeing that the quota would be filled with U.S. commodity milk destined to be turned into “Canadian” value-added products.

Basically, the government acted so as to guarantee that you still won’t hurt yourself stumbling across any Wisconsin blue cheese at the grocery, and that you won’t inadvertently consume any American milk before Canadian Big Dairy has had the chance to squeeze a nickel out of it. If you argue with a dairyman about the supply management that keeps him fat and happy, by the way, he is almost guaranteed to assure you that U.S. milk is mostly white lead mixed with anthrax and filth. But the cartel he supplies is positively ravenous for that U.S. milk when a treaty requires it to be included in our import quota.

I'm not optimistic about real NZ access to Canadian markets, regardless of what Canada might have signed under CPTPP.  

Wednesday, 12 January 2022

Breaking Bertrand

New Zealand's two large supermarket chains seem to compete with each other for market share.

Anyone who's done undergrad IO knows that if you have two competitors who can each take the whole market by having a slight price edge over the other guy, you can wind up with a Bertrand outcome. The duopolists behave as though they're perfect competitors. Taking the whole market is valuable. 

Now, if they could sign some cosy deal with each other, splitting up the market between themselves, that would be best from their perspective. Undercutting each others' prices to take the whole market is great and will always be in the interest of each of them in the moment, but Cournot rents are far higher. 

But they can't sign such a deal because it would be illegal under competition law. 

And that made this proposal ... interesting.

In a cross-submission following the competition watchdog's public hearings last November, Coriolis MD and founder Tim Morris said the only way to break the power of the two main supermarket owners in NZ – Foodstuffs and Woolworths/Countdown – is to force divestments when market share gets too large. 

“If you want competition in traditional supermarkets in any meaningful timeframe, you will need to force separation (at Foodstuffs) and or divestment (at WW/Countdown)," he wrote in a submission published by the commission as part of its inquiry into supermarket pricing. Foodstuffs operates as a cooperative whereas Countdown and its associated brands are part of the ASX-listed Woolworths company. 

Divest at 27% 

“As a strawman, I propose by January 2024, any food retailer with more than 27% market share in any region of NZ (eg Canterbury) shall be forced to divest stores until they reach 27%” market share", a level chosen by reference to European and North American regional peers.

Foodstuffs and Countdown wouldn't be able to sit down in a room together and make a deal requiring each to sell off some stores if it ever crossed a market-share threshold. But it's being pitched as an antitrust solution. 

I expect that they are far from perfect Bertrand competitors. But banning them from going past some market share threshold tells them, when at the threshold, to stop competing. That doesn't seem like any kind of good idea. 

I still think all of this is stupid when the regulatory barriers to new entrants are the first-order problem that haven't been dealt with.