The Commerce Amendment Act 2018 amended the Commerce Act 1986 (the Commerce Act) to give the Commerce Commission the ability to undertake market studies to determine whether there are any factors that may be impeding competition in a market.
Market study into retail fuel
On 3 December 2018, the Government announced that the retail fuel market had been selected as the subject of the first Commerce Commission market study.
The Commerce and Consumer Affairs Minister considers it is in the public interest to require a study into this market, given factors such as:
- the more than doubling of petrol and diesel importer margins over the past decade which could not be explained by any significant increase in capital expenditure
- the size of the market (around 6 billion litres of petrol and diesel are consumed for land transport use annually)
- the inability of previous studies to definitively conclude whether or not there is a competition problem in the market
The Commerce Commission has been given 12 months to complete the study. The Commission must publish a final report on competition in the retail fuel sector by 5 December 2019.
Terms of Reference
The Terms of Reference for the market study is focused on factors that may affect competition for the supply of retail petrol and diesel used for land transport throughout New Zealand.
Read the Terms of Reference.
Matters to be considered in the study may include, but are not restricted to:
- the structure of the industry
- the extent of competition at the refinery, wholesale and retail levels, including the role of imports
- any factors that may hinder competition between industry participants
- the conditions for entry by potential competitors, including independent suppliers, and/or the conditions for expansion
- whether wholesale and retail price and service offerings of petrol and diesel are consistent with those expected in workably competitive markets
- features of retail petrol and diesel markets that are not in the long-term interests of consumers.
- Find out more about the Commerce Amendment Act 2018.
- Read the Terms of Reference for the retail fuel market study
- Read the Cabinet paper
- Find out more about the study and how interested parties can participate on the Commerce Commission website.(external link)
A market study helps determine whether there are any factors that may be impeding competition in a market or markets for goods or services. Market studies focus on the structure and behaviour of the market itself, not the actions of any specific company.
Market studies allow for the identification of any factors that are preventing, restricting or distorting competition. Examples of such factors may include:
- costly out-dated regulations
- restricted access to key infrastructure
- widespread use of restrictive terms in contracts, or
- undue constraints on the ability of consumers to change suppliers.
Market studies are performed by more than 40 competition agencies worldwide. They provide governments and the public with an in-depth understanding of how sectors and markets work.
Initiating a market study
Under the Commerce Act, market studies can be initiated by the Minister of Commerce and Consumer Affairs or self-initiated by the Commerce Commission. In either case, the initiator must be satisfied that carrying out the study is in the public interest.
A study is considered to be in the public interest if it promotes the purpose of the Commerce Act – to promote competition in markets for the long-term benefit of consumers within New Zealand. Some or all of the following (non-exhaustive) criteria may be relevant:
- there are existing indications of competition problems in the market (such as high prices or low levels of innovation)
- the market is of strategic importance to the New Zealand economy or consumers
- it is likely there will be viable solutions to any issues that are found
- a formal Commerce Commission study would add value above work that could be done by other government agencies.
Process for undertaking a market study
Information about the process for undertaking a market study is available on the Commerce Commission’s website.
Timeframe for completing a market study
The length of time to complete a market study will depend on the specifics of the study, the terms of reference and the information and analysis required. An ‘average-sized’ market study will take around 1 year to complete.
Potential outcomes of a market study
The Commerce Commission must prepare and publish a final report setting out its findings.
The report might dispel views competition is restricted or distorted. Alternatively, it might confirm there are competition problems and make recommendations as to how competition could be improved.
The Commission recommendations are non-binding, but the Government will be required to publicly respond to the recommendations in a reasonable timeframe.