The Commerce Act forbids anticompetitive conduct. There are established processes for proving that commercial conduct is unlawful, with penalties and remedies that follow. Due process matters. And unlawful behaviour has consequences.

In the midst of an election campaign, National has promised to break up one of the country’s larger grocers, Foodstuffs, without any finding of relevant unlawful conduct. A break-up instead would largely depend on whether the Commerce Commission agrees with a cost-benefit assessment.

That cost-benefit work still requires substantial sensitivity testing, but we’ll come back to that.

For now, let’s stick with the due process issue.

The Commerce Act scales its remedies and penalties to the conduct that it polices. Substantial fines are available, often scaled to the commercial gain a company has obtained from the unlawful conduct.

Break-up, or forced divestiture, is available in particular acquisition-related circumstances. Courts can order divestiture to remedy an unlawful acquisition. Merger clearance can also require selling parts of a business, and courts can enforce those commitments.

And the requirement can make sense in that context.

It does not make any kind of sense in the context of retail grocery where there have not been unlawful acquisitions.

But an economist with a bit of a competition-law interest can have fun with thought experiments. What sort of scenario could lead to adding a new break-up power?

Unlawful conduct aimed at thwarting competition would not be enough. Not on its own. The Commerce Act has meaningful penalties for that, as well as remedies. The Courts can apply injunctions against continuing the unlawful behaviour too.

And that would normally be the end of things. Injunctions and penalties work. Break-ups are not a potential remedy in this kind of thing because it is entirely disproportionate.

Something else would have to happen.

Imagine that, after the injunctions, rather than really abide by the decisions, a firm that has engaged in unlawful conduct kept finding new ways of achieving the same anticompetitive outcome.

Monitoring and interim relief provisions could normally prevent this. So there still would be no case for adding a break-up power.

But suppose that unlawful conduct could happen faster than the Commission could ever act, and potential entrants would lose financing before the Commission could act to stop behaviours aimed at killing off a new entrant.

In that kind of scenario, it is possible to imagine the Commission asking Parliament to provide a break-up option. It is still a stretch: Commerce Act penalties can extend to three times the commercial gain.

But even if that option were made available, invoking it would only be possible after court determinations of unlawful behaviour that could not be remedied more normally.

And I would hope that it would also require cost-benefit assessment demonstrating that separation is more effective than the full range of less intrusive remedies, and provides benefits that exceed the costs – along with a chance to test and challenge the workings.

The National Party proposes jumping to the remedy that it prefers: breaking up the supermarket if the Commission recommends it, after the Commission tests a cost-benefit assessment that MBIE commissioned.

Hopefully, the Commission will have enough time and scope to do that work carefully.

Consumer benefits in the commissioned cost-benefit assessment depend on an assumption that New World and PAK’nSAVE stores do not compete hard against each other. If that assumption is wrong, the promised benefits will not exist.

The study also assumed that stores would continue to be viable, despite losing, to a first approximation, all of their combined current operating profits.

If those assumptions do not hold, or if duplicating supply chains costs more than expected, costs to consumers could easily exceed benefits.

I went through some of these sensitivities in a short research note released last week.

But the more fundamental problem remains. Even if the cost-benefit assessment holds up, none of the rest does. There has been no finding of relevant wrongdoing to which separation is the best remedy.

And if National wants to encourage entry, there is still plenty of work to be done in easing regulatory barriers. Breaking up a supermarket with no finding of wrongdoing, while still making it very difficult for an entrant like Tesco to come to New Zealand without costly relabelling of its product range, and making that entrant take on fights over off-licences with every council where it might want to operate, seems more than a little out of order.

The lack of appropriate due process in this case means every other company needs to worry that it could be broken up at the whim of a government nervous about its polling and seeking to ride populist vibes into the last weeks of an election campaign.  

National went into the last election promising a resource management system based on property rights.

It goes into this one promising that property rights are only as secure as a cost-benefit assessment and election campaign vibes.

To read the article on The Post website, click here.