New Zealand: Commerce Commission
The New Zealand Commerce Commission (the Commission) has experienced another demanding but successful year. 2014–2015 has seen a number of milestones achieved, high-profile investigations completed, and new education and advocacy programmes highlighting some significant legislative reforms.
The Commission plays a key role in promoting competitive markets in New Zealand, promoting fair trading and competition, and protecting the interests of consumers. New Zealand is currently ranked 17th on the Global Competitiveness Index and has improved each year since 2011.
Our 2015 Consumer Issues report, released in September 2015, goes into greater detail about the factors that impact the Commission’s work, and the consumer and competition issues we are currently dealing with. One of the trends identified is the ongoing rise in online trading activity. Last year, 33 per cent of our complaints related to online trading.
The past year has seen several high-profile and long-running cases concluded. In late 2014 we completed investigations into allegations of anticompetitive behaviour in the supermarket and plasterboard industries. The seriousness of the allegations warranted careful examination, particularly as the supermarket and construction sectors have wide consumer reach and potential impacts on the New Zealand economy. In both investigations, no evidence was found that the conduct we investigated breached the relevant legislation.
The Commission’s plasterboard investigation looked at whether Winstone Wallboards Limited (Winstone) may have breached the Commerce Act, either through agreements that shut out competitors or through predatory pricing. After thoroughly investigating the issues, we found Winstone’s very high market share was driven by a number of factors, including brand recognition and product reputation. We found no evidence to suggest Winstone had breached the Commerce Act through exclusive agreements with merchants, rebates offered, or an anticompetitive predatory strategy.
The supermarkets investigation focused on a number of areas, including whether Progressive Enterprises Limited (Progressive) had engaged in any conduct that was misleading, deceptive or otherwise breached the Fair Trading Act. In addition, the investigation considered whether there was any evidence to suggest that Progressive’s behaviour might breach the Commerce Act. The evidence did not show that Progressive had engaged in misleading or deceptive behaviour, or coerced its suppliers in breach of the Fair Trading Act. Nor did the evidence show Progressive engaged in anticompetitive behaviour in breach of the Commerce Act.
The Commission has also investigated the widespread use of ‘opt-out’ pricing this year – the practice of traders pre-selecting additional charges during an online sales process. We believe this practice potentially misleads consumers into paying for something they do not want or need. Our investigation into Air New Zealand’s use of ‘opt-out’ pricing to sell travel insurance resulted in the airline deciding to end this practice. The ensuing publicity led two other traders to follow suit, however, investigations into a number of other traders still using ‘opt-out’ pricing are ongoing.
Cartels can lead to higher prices, less choice, lower-quality products and lack of innovation by businesses. Over the last three years, the Commission has seen an increase in domestic leniency requests seeking immunity from prosecution. In line with this, we cooperate closely with overseas competition agencies in relation to international cartels, and are increasingly using waivers to coordinate and exchange information with these agencies.
The Commission completed an investigation into alleged price-fixing agreements made prior to the introduction of the National Animal Identification Tracing Act 2012. This investigation culminated in the Commission filing court proceedings against PGG Wrightson, Elders New Zealand and five former and current staff members.
Mergers and acquisitions
Over the last three years we have noted a rise in the number of merger clearance applications, although numbers are still down from pre-global financial crisis levels. The Commission received 14 merger applications this year. All merger clearance applications received are assessed to determine whether competition would be substantially lessened in the markets involved as a result of the merger. We declined two applications this year, our first declines since the 2013 financial year. Connor Health Limited, the applicant for one of the declines, subsequently reapplied and was granted clearance subject to a divestment undertaking.
The Commission also received two authorisation applications, the first for four years. Approval was granted for members of the Infant Nutrition Council (INC) to follow their Code of Practice that restricts advertising and marketing of infant formula for children under six months of age. The Cavalier Wool application to acquire New Zealand Wool Services International’s wool scouring business has also been approved, although competitor Godfrey Hirst has filed an appeal.
In January 2014 we introduced a new approach to ex post merger reviews. Instead of considering whether a particular decision was right or wrong, we focused on our original analysis to see which predictions held true. In particular, we looked at whether market conditions developed as we predicted, with the aim of learning which of our analysis techniques and types of evidence best serve their purpose. This year we reviewed 18 past mergers involving 40 markets.
Advocacy and education
While the Commission is an enforcement agency, our advocacy and education functions assist businesses and consumers to understand how the law affects them. Prevention remains the best cure and we continue to see real value in investing in education programmes across all the Acts we enforce.
The Commission continues to work closely with businesses and industry associations in the sectors we are focused on. The construction industry remains a priority for us as it continues to expand, with the Christchurch rebuild ongoing, and strong growth in Auckland.
As well as providing educational material and continuing to push for businesses to establish strong compliance programmes, we have hosted presentations, including the first ‘build your knowledge’ workshop, spoken at industry events and conferences, and worked hard to drive traffic to our construction microsite. The microsite has been a significant success as an educational tool and this year won the International Competition Network/World Bank Group Competition Advocacy award for ‘promoting awareness of competition benefits in a time of crisis’.
Looking forward to the year ahead
We welcomed Graham Crombie as an associate commissioner in July 2015 and welcomed a new, yet familiar commissioner in Dr Jill Walker in December 2015. Jill has served two terms as a commissioner with the Australian Competition and Consumer Commission (ACCC) and has been an associate commissioner of the NZCC since 2010. Her existing knowledge of our work will make for a very smooth transition. Jill replaced Pat Duignan, who left the Commission at the end of 2015. Pat has had a hugely influential role working across the broad spectrum of regulation decisions. His expertise has been highly valued during his tenure and we wish him well.
The past 12 months have seen some major milestones achieved across the organisation. We have a great team of people, led by chief executive Brent Alderton, who work tirelessly on behalf of New Zealanders. As chairman, I take pride in our past achievements and look forward to the year ahead.