The Commerce Commission’s New Lamp Post

Dr Eric Crampton
Insights Newsletter
5 August, 2022

We all know the old joke that an economist would look for his keys under a lamp post not because that’s where he’d dropped them, but because that’s where the light is.

But sometimes new lamp posts add the necessary extra bit of illumination.

When the government proposed market studies powers for the Commerce Commission, it is fair to say that we at the Initiative were sceptical.

The new tool brought a lot of risk.

It can compel companies to supply the Commission with huge amounts of information, at substantial expense, with no particular checks and balances.

It gives the Minister, who can direct Market Study investigations, the ability to impose tens of millions of dollars of cost on a company, and to tie up its senior executives for months.

It is dangerous.

But it also allows the Commission to shine a light in exactly the place it was previously precluded from looking.

Section 43 of the Commerce Act exempts activities authorised by government.

Government creates and enforces a lot of arrangements that would normally otherwise be called cartels, or at least be considered strongly anticompetitive, if undertaken without the government’s help.

The Commerce Commission has been able to act against other forms of anticompetitive activity.

Statutory regimes have been off-limits and have consequently been the largest remaining source of harm to consumers.

When Market Study powers first arrived, in 2019, I urged the Commission, in a column in Newsroom, to finally examine areas where regulation and legislation have stymied entry.

I noted the effects of zoning on retail competition.

Building materials, where the combination of council incentives under joint-and-several liability and certification regimes also seemed a substantial regulatory barrier to entry, also warranted a close look.

Earlier this year, the Commission released a report pointing to zoning and consenting as a substantial barrier to entry in grocery retail.

This week, the Commission’s draft report on building materials highlighted the substantial government-imposed barriers to entry.

The problems were obvious. Fixing them should not have required the cost of a market study.

But the Commission has been pointing its new light to excellent effect, letting everyone see important detail.

Regulatory barriers preventing foreign doctors from practicing in New Zealand also deserve illumination.

There are keys there to be found in that dark spot.

It needs a lamp post.

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