This week the Minister of Commerce & Consumer Affairs instructed the Commerce Commission to commence a market study to investigate any barriers that may affect competition when it comes to residential building supplies.

In this article we look at what a market study involves, its scope, process and what impact it may have on the sector.

Market studies

In a market study, the Commission examines an industry sector broadly to assess whether there is effective competition in the relevant markets within that sector or whether competition could be improved. Some of the specific factors the Commission will look at include market concentration, conditions of entry/exit, cost structures, degree of differentiation in products or services, access to information and patterns of consumer and supplier behavior.

This will be the third market study conducted by the Commission to date - the other two being into retail fuel supply and retail grocery. Unusually, the Commission has opened the market study for residential building supplies before it has finished its previous market study into retail grocery. After having its timeframe extended, the final report for the grocery study is now due by 8 March 2022.

Scope of the building supplies market study

While the Commission can self-initiate market studies, this particular study was commissioned by the Hon David Clark, Minister of Commerce and Consumer Affairs through a Gazette notice. The Terms of Reference for this market study require the Commission to consider:

• The industry structure for key building supplies.
• The nature of competition for these key building supplies, including any industry pricing practices or acquisition requirements that impact on competition.
• Impediments to the entry or expansion of new or innovative building supplies, such as “green” building supplies or novel prefabricated products.

The Commission is not restricted to considering these areas and has noted that the broad terms of reference allow it to “look up and down the supply chain and across product lines”.

Market study process

The Commission has released its “Statement of Process” setting out its intended process and indicative dates.

From here, the market study process will begin with the Commission releasing a “preliminary issues paper” in December 2021, which will set out some areas of focus for the market study. Relevant parties will be invited to comment on this.

The Commission will then enter into a four stage process:

• Firstly, the Commission will begin information gathering from a range of sources including market participants and consumers - the Commission has indicated this will begin in November-December 2021, and continue from January-July 2022;
• Next, the Commission will test its findings with the relevant parties, in order to review its analysis and ensure its recommendations are fit for purpose - this will occur around April-May 2022;
• The Commission will then publish a draft report on its preliminary findings, and invite comments from interested parties - the Commission has indicated this will happen around July 2022; and
• Finally, after considering any comments, the Commission will publish its final report - the current deadline for publishing the final report is 6 December 2022.

Possible outcomes

The final report will set out the Commission’s conclusions about competition in the residential building supplies market, and will put forward recommendations to address any issues identified.

The market study may have a number of outcomes, including:

• a “clean bill of health” for the sector in terms of competition;
• recommendations as to how to enhance competition in the sector (which could include legislative or policy changes); or
• an investigation and possible enforcement action where any information that the Commission has collected suggests that any of the laws it enforces have been breached.

Once the final report is published, it is up to the Minister of Commerce & Consumer Affairs to decide whether to take up any of the Commission’s recommendations. For example, following its market study into the retail fuel sector the Commission made eleven recommendations, of which the Minister ‘agreed’ with six which were later implemented by new legislation and regulations. Four other recommendations were passed on to the relevant parties for responses, and the last was noted as requiring further consideration.

Implications

The time and cost for parties of being involved in a market study can be substantial. This is especially the case given the market study process takes the bulk of a year and can result in multiple information requests from the Commission to relevant parties.

Nor should the potential outcomes from a market study be under-estimated in terms of their impacts. For retail fuel, the market study there resulted in the Government passing legislation which introduced a terminal gate pricing regime which requires wholesalers to make their fuel products available to purchasers at the terminal gate. For retail grocery, the Commission has already raised in its draft report the potential options of direct sponsorship of entry by government either by encouraging investment by direct entry, or by requiring the major grocery retailers to sell some of their stores to create additional major grocery retailers..

Get in touch

Please get in touch with one of our contacts if you have any questions relating to the market study into building supplies, or for assistance with making submissions.

Special thanks to Elsie Stone and Julia Marshall-Mead for their assistance in writing this article.