If you haven't caught up with Habilis NZ's submission to the Commerce Commission regarding the Foodstuffs NI-SI merger, then its definitely worth a read. Habilis New Zealand Ltd provides consultancy and advisory services to regional New Zealand, including strategy development, economic and social impact modelling, business case and investment proposal development, stakeholder engagement and communications, and benefit and impact analysis. It's client base includes iwi, NGOs, local government and the private sector.
The submission could be summed up as "there is strong evidence that the duopolists can act unilaterally on pricing, product and profit, with impunity".
"Foodstuffs asserts that the merger of FSNI and FSSI will have no adverse market outcomes. Sadly, we agree – but this is solely due to structural market failure in the grocery sector, which has been enabled by the Commission’s regulatory failure."
Here is an excerpt:
MARKET FAILURE
The Commission has obviously conducted a market study into the grocery sector, which notes the duopoly that stands astride the sector, the excessive profits, and the low likelihood that the barriers to entry and scale can be overcome by new competitors.
The market study also made recommendations that resulted in new legislation and the freshly-minted Grocery Commissioner. In our view this is a textbook case of bureaucratic
magical thinking, hoping that the essential nature of the two duopolists would change simply because of some additional headcount at the Commission. While it’s early days, it’s already clear there has been minimal impact on the supermarket bills of Kiwis, and there is certainly no indication that the grocery sector is any more competitive since the Commission commenced the study, nearly four years ago.A useful definition of a monopolist is “companies that can act independently without needing to consider the responses of competitors, customers, workers, or even governments.”
This certainly applies to both Foodstuffs and Woolworths – there is strong evidence that the duopolists can act unilaterally on pricing, product and profit, with impunity.
There is no sense that this dynamic will change in the near future. As noted, the recent legislative changes have had no discernible effect on the level of competition to date, and the changes to market structure – restrictions on land use, some voluntary wholesaling obligations – are so timid that they will not result in any structural market reform. For the purposes of the SOPI, then, it is reasonable to assume:
• The grocery market has failed; and
• That failure will continue into the indefinite future, in the absence of new regulatory
intervention.
