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New Zealand Law Students' Journal |
Last Updated: 7 April 2024
Competition Law or Competition between Special Interest Groups? The Accountability Deficit in the Commerce Commission’s Market Study Power
SEAN CHAN[*]
Abstract—The Commerce Commission’s market study into the retail grocery sector faced significant criticism from the media due to its perceived backtrack on the draft report recommendations aimed at promoting competition in New Zealand’s grocery market duopoly. This article argues that the Commerce Commission’s market study power under pt 3A of the Commerce Act 1986 represents a departure from the Commission’s traditional competition and fair trading functions and brings the Commission into the policymaking arena. As such, there are concerns about the democratic legitimacy of these functions. Focusing on the market study into the retail grocery sector, this article reveals that the market study process favours organised industry groups at the expense of disparate consumer groups. These findings underscore the need to reinforce the Commission’s accountability in exercising the market study power. By applying Mark Bovens’ accountability framework, this article argues that the market study process inadequately represents the interests of consumer groups affected by this regulatory power and therefore falls short from a democratic perspective of accountability.
“ComCom report ‘weak’”[1] – The National Business Review
“Commerce Commission’s supermarkets softly-softly makes life harder for Government”[2] – Stuff
“Final supermarket report a big backdown ...”[3] – The New Zealand Herald
“Commerce Commission gutlessly capitulates to Supermarket Duopoly”[4] – The Daily Blog
“New Zealand’s supermarket duopoly lives to profit another day”[5] – The Spinoff
“Supermarkets win in the
end”[6]
– Democracy Project
In recent years, concerns about the high cost of
living have dominated headlines. Grocery prices, in particular, have
substantially
increased as a result of post-Covid inflation. Recognising the
need to address the growing public outcry, the Minister of Commerce
and Consumer
Affairs (the Minister), the Hon David Clark MP, initiated a market study in
November 2020 to investigate whether competition
within the retail grocery
sector was benefiting consumers
effectively.[7] Two years later, the
Commerce Commission (the Commission) released its final report on the market
study into the retail grocery sector,
which was met with widespread condemnation
for failing to live up to its aspirational potential. Many observers were
disappointed
with the Commission’s backtrack on its initial draft
recommendations, which were perceived as having the potential to significantly
transform the state of competition in the supermarket industry. Moreover, the
diluted final report was seen as letting the two dominant
supermarket chains off
the hook—despite the Commission’s conclusion that they formed a
formidable anti-competitive duopoly.
To understand how this situation
unfolded, it is necessary to return to July 2021, when the Commission published
its draft market
study report. The Commission recommended taking bold action to
support the entry of a third supermarket player into the market. It
found, among
other things, that the retail grocery market was a “duopoly with a fringe
of other competitors” dominated
by Foodstuffs (New World, Pak’nSave
and Four Square) and Woolworths (Countdown, FreshChoice and
SuperValue).[8] The Commission also
identified that this duopoly was detrimental to consumers, resulting in higher
grocery prices compared to a competitive
market and international
standards.[9] Consequently, the
Commission proposed several options to enhance competition—the most
significant being the direct stimulation
of retail competition. The Commission
envisioned that it could achieve this either by the government facilitating a
new supermarket
entrant through a competitive tender process or requiring the
supermarkets to divest some of their existing stores to support the
establishment of a third supermarket
chain.[10]
The entry of a third
competitor to break up a duopoly is not unprecedented in New Zealand. For
example, 2Degrees formed to challenge
the Vodafone/Telecom duopoly in the
telecommunications sector. However, while private sector action to enter a third
competitor is
not uncommon, direct government intervention to facilitate a new
market entrant to promote competition is
unprecedented.[11] Indeed, this
proved to be a step too far for the Commission. In its final report, the
Commission recanted from its recommendations
to directly stimulate retail
competition, drawing criticism from observers. Despite acknowledging the
duopolistic nature of the market,
the Commission concluded that a new
government-facilitated entrant would likely encounter challenges in terms of
entry or expansion,
similar to those of other potential
entrants.[12]
Analysing
the specific justifications behind the report’s findings is beyond the
scope of this article. Instead, I consider
how the Commission’s market
study process could be improved to give consumers a greater voice, allowing the
Commission to give
proper weight to the consumer perspective and potentially
avoid heavy public backlash in the future. There is a noticeable lack of
commentary on the Commission’s power to conduct market studies. Despite at
least 45 countries having a similar market study
power, former Commerce
Commissioner Donal Curtin could only find one academic article concerning market
studies.[13] Yet, market studies are
worth analysing. It is arguably uncommon to ask a competition regulator to
formulate policy that considers
both competition and non-competition objectives.
This unique aspect of the market study power sets it apart from the
Commission’s
traditional functions related to competition and fair
trading. Applying a public law lens, it is important to scrutinise whether
the
Commission possesses the democratic and constitutional mandate to undertake this
bold new function. Ultimately, this article
seeks to highlight the need for
proper accountability mechanisms concerning the market study power to ensure
democratic legitimacy
in the eyes of the public.
By exploring these concepts
within the context of the grocery market study, this article concludes that (i)
the market study process
demands greater accountability measures than the
Commission’s other functions; (ii) without substantive changes, the market
study process will continue to favour powerful industry actors at the expense of
vulnerable consumer groups; and (iii) the implementation
of stronger
accountability mechanisms would enhance the democratic legitimacy of the process
and minimise the risk of industry domination.
Part II of this article
discusses how the market study power differs from the Commission’s other
functions. Part III highlights
why these differences demand the establishment of
clear accountability mechanisms for the market study power. Part IV details how
the market study process currently favours enabling and elevating regulated
industries over consumers, before applying the theory
of interest-group
pluralism to demonstrate that regulated industry actors enjoy greater voice and
access to the market study process
than consumers. Then, Part V discusses the
need for strong accountability mechanisms to monitor and prevent industry groups
from
exerting undue dominance over the market study process, before employing
Mark Bovens’ accountability framework to propose several
recommendations
aimed at improving accountability in the market study process.
The Commerce Amendment Act 2018 inserted pt
3A into the Commerce Act 1986 (the Act), which grants the Commission the power
to carry
out market studies (called “competition studies” in the
legislation).[14] Market studies
have become a globally prevalent approach employed by competition authorities to
promote competition. These studies
empower competition authorities to examine
various aspects of a market, including its structure, the behaviours and
practices of
marketplace participants, and the barriers hindering a competitive
environment.[15]
By international standards, New Zealand was late in adopting the market study
power. A 2015 study found that at least 45 competition
agencies internationally
had the power to conduct market
studies.[16]
The
Act defines a market study as a “study of any factors that may affect
competition for the supply or acquisition of goods
or
services”.[17] The overriding
aim of market studies is the same as the purpose of the Act itself, that is, to
“promote competition in markets
for the long-term benefit of consumers
within New Zealand”.[18] The
remainder of Part II discusses how the market study power operates in New
Zealand. Part III subsequently illustrates how the
market study power deviates
from the Commission’s competition law functions, demanding stronger
accountability mechanisms.
Before 2018, the
Commission conducted various ad hoc market studies without the explicit
statutory power to do so.[19] These
studies occurred despite the Court of Appeal’s 1994 decision in
Commerce Commission v Telecom Corp of New Zealand Ltd, which found that
the Commission’s incidental powers under the Commerce Act did not extend
to “conducting an inquiry
and publishing a report ... otherwise than when
determining an application before the
Commission”.[20] However,
following the Act’s insertion of pt 3A, the market study model now
expressly delegates power to the Commission, consistent
with market study powers
in comparable jurisdictions.[21]
Market studies can be initiated by either the Commission or the Minister if
either considers it to be “in the public interest
to do
so”.[22] The term
“public interest” is not defined in the Act, which is concerning
given it is the only formal legal constraint
on the exercise of the market study
power. However, the Commission’s market study guidelines suggest it will
consider the public
interest with reference to its purpose of “promot[ing]
competition in markets for the long-term benefit of
consumers”.[23]
According to the Commission, relevant factors likely to be considered to
determine whether a market study is in the “public
interest” include
whether:[24]
(a) there are indications that the market may not be working as competitively as it could be;(b) the particular conduct of concern can be considered under another part of the Act or another statute; and
(c) the Commission is or is not best placed to carry out the study.
The Act imposes few procedural requirements on conducting market studies.
First, the party that initiated the market study (either
the Commission or
Minister) must prescribe the terms of reference and the date of publication for
the final report by notice in the
Gazette.[25] The terms of
reference specify the goods or services to which the study relates and describe
the scope of the study.[26] The
terms may also prescribe the parties and organisations that the Commission must
consult as part of the study.[27]
Secondly, the Commission must release a public draft report and allow a
reasonable time for comments.[28]
When preparing its final report, the Commission must have regard to any comments
received on the draft report.[29]
While the Act contemplates the draft report as the primary point of formal
engagement with industry stakeholders, in practice, the
Commission engages the
industry throughout the market study process. To the extent that the study
involves an industry or market
where the Commission lacks prior knowledge,
stakeholder involvement throughout the process “helps input into the
[study’s]
scope, analysis and
recommendations”.[30]
Regular stakeholder engagement also helps the Commission “identify
pertinent questions and information sources”, avoid
“errors or
misinterpretations of evidence”, understand the workability of potential
recommendations and take a “broader
and sounder view of the
sector”.[31]
The
Commission typically adopts a less adversarial and legalistic approach to its
involvement of stakeholders in market studies compared
to its enforcement
actions. This approach aims to foster “buy-in” of the
Commission’s ultimate
recommendations.[32] While the
Commission prefers to acquire information voluntarily from stakeholders, it
reserves the power to compel confidential and
commercially sensitive information
from parties under s 98 of the
Act.[33]
Section 98 grants the Commission the power to require a person to supply them
with information, documents or
evidence.[34] A limitation on this
is that the Commission must consider that exercising its powers is
“necessary or desirable for the purposes
of carrying out its functions and
exercising its powers under this
Act”.[35] However, these
powers are broad in scope and subject to few formal limitations.
Once the
Commission has prescribed the terms of reference and produced a draft report, it
must then publish a final report with its
findings consistent with the date
indicated in the terms of
reference.[36] Like most
international competition authorities, the Commission uses an advisory model for
market studies.[37] Under the
advisory model, the Commission’s recommendations are not binding until
further action is taken by the
government.[38] The primary
objective of these recommendations is to enhance competition. They may propose
modifications to legislation, policies
or practices of the central or local
government, regulatory policies or practices, the conduct of market
participants, and the implementation
of further monitoring
mechanisms.[39] However, the
Commission is not required to make
recommendations.[40] For example,
the Commission could instigate a market study to “refute mistaken public
assumptions that anti-competitive behaviour
is taking place, most notably in
cases of price increases”.[41]
The government must respond to any recommendations from the final report.
Section 51E of the Act requires the Minister to respond
“within a
reasonable time after the report is made publicly available”. This
requirement places New Zealand’s advisory
model on the stronger end of the
spectrum by international standards. According to the International Competition
Network, only nine
out of 36 jurisdictions (25 per cent) require the government
to respond to the competition agency’s
recommendations.[42]
In sum, New Zealand’s market study power is characterised by limited
procedural requirements and a range of formal accountability
mechanisms. The
most significant procedural requirements are the requirements to release a draft
report and consider any comments,
the use of the “advisory” model,
and the obligation on the government to respond within a “reasonable
time”.
However, certain areas raise concerns, such as the ambiguous
definition of the “public interest” to trigger a market
study and
the absence of constraints on the exercise of the information-gathering power
under s 98. The next section discusses how
the market study power differs from
the Commission’s competition and fair trading functions, emphasising the
need for strong
accountability mechanisms.
The
Commission is an independent Crown entity tasked with enforcing laws relating to
competition, fair trading and consumer credit
contracts.[43] This entails its
enforcement function, whereby the Commission seeks to eliminate anti-competitive
conduct across the marketplace
by investigating and enforcing individual cases
of anti-competitive conduct.[44] The
Commission’s focus lies in investigating and enforcing cases of
anti-competitive behaviour primarily involving private
parties. The enforcement
function is ex post or retrospective since there must be evidence of
conduct that breaches competition law before the Commission can use its
investigation
and enforcement
powers.[45] This function is
premised on the view that concentrated markets with firms behaving
anti-competitively result in higher prices for
consumers or reduced producer
outputs. Such outcomes are harmful to consumer and economic welfare, and thus, a
key purpose of competition
regulation is to enhance competition for the purpose
of maximising economic and consumer
welfare.[46]
However, the market
study power recognises that competition issues within a marketplace are not
always the result of competition law
infringements. Traditional antitrust
enforcement focuses on the anti-competitive conduct of individual firms and may
not be well-equipped
to address issues within the market structure
itself.[47]
An example of this is price leadership
behaviour,[48] which is typically
not considered a breach of competition law, yet can still detrimentally impact
consumer welfare.[49]
In
contrast to the enforcement function, which primarily aims to prevent
deterioration of competition, market studies are a proactive
measure for
promoting and enhancing market competition. The Commission can evaluate ex
ante the market characteristics that are impeding
competition.[50] Unlike traditional
antitrust, which focuses on individual firms’ conduct, market studies
allow the Commission to analyse the
competitive dynamics of an entire market.
These studies extend beyond the investigation of explicit collusion and abuse of
market
power, allowing for the investigation of a wider range of competition
concerns.[51] These concerns
include, for example, regulatory and structural barriers, network effects and
consumer behavioural factors which can
be more readily addressed through the
findings of a market study.[52]
Whilst market studies are more interventionist than traditional antirust, it
must be noted that the Commission already engages in
ex ante, policy type
decision making in some of its other remits. As the Court of Appeal observed in
NZME Ltd v Commerce Commission, the Commission can consider non-economic
factors and public benefits in its decision to authorise
mergers.[53] However, the difference
between mergers and market studies is twofold. First, market studies can be
initiated without pre-specified
potentially anti-competitive conduct by private
parties.[54] Secondly, the potential
remedies are more interventionist in the market study context. Market study
remedies are typically economic
remedies that affect the conditions for the
entire market, as opposed to legal remedies affecting only the merging
parties.[55] In sum, despite the
Commission already engaging in ex ante decision making in some of its
remits, the market study context calls for closer scrutiny for the reasons
above. As this next part
discusses, the Commission’s expanded market study
role demands strong accountability mechanisms.
The market study power represents a departure from traditional antitrust. But perhaps more significantly, it reflects an ongoing debate about the objectives of competition law and suggestions that competition agencies should pursue a greater set of goals than economic efficiency. American legal scholar and former Federal Trade Commission chair, William Kovacic, argues that “the historical concept of competition law is inadequate and that competition agencies should invest resources in pursuits beyond the prosecution of cases”.[56] Accordingly, the market study power strengthens the Commission’s ability to influence market structures, business conduct and economic incentives, reflecting the contention that it should engage in activities beyond its traditional enforcement role.[57] In a recent article, University of Michigan Law Professor, Daniel Crane, stated:[58]
Antitrust law stands at its most fluid and negotiable moment in a generation. The bipartisan consensus that antitrust should solely focus on economic efficiency and consumer welfare has quite suddenly come under attack from prominent voices calling for a dramatically enhanced role for antitrust law in mediating a variety of social, economic, and political friction points, including employment, wealth inequality, data privacy and security, and democratic values.
Arguably, the market study power brings competition law further into the policymaking domain. The power demonstrates a growing consensus that competition-policy goals are often better achieved through policy instruments rather than law enforcement mechanisms.[59] As Kovacic asserts, the ability to make recommendations, even without the authority to enforce them, grants significant influence to competition agencies in shaping policy.[60] Kovacic highlights numerous instances where the publication of a market study report has inspired legislative reforms or prompted government bodies, such as sectoral regulation bodies, to modify their policies in line with the competition agency’s recommendations.[61] In fact, as indicated by the International Competition Network, two of the three most common outcomes from market studies are “changes to government policy” or “changes in the law” (as shown in Figure 1).
 |
|
Figure 1 Most common outcomes of market studies from a
review of 38
jurisdictions[62]
|
However, legitimate concerns arise regarding whether competition agencies are the most suitable entities to engage in public policy reform decisions. The democratic mandate of competition agencies to engage in public policy decisions has been heavily contested on the basis that they are a “professional agency, not directly nominated by the public”.[63] Lodge highlights that democratic legitimacy issues may arise when significant policy issues “are seen to have been moved from majoritarian to non-majoritarian institutions”.[64] In particular, issues could emerge when the Commission’s policymaking function conflicts with its implementation and enforcement functions. The Monash Business Policy Forum observes that:[65]
... separation of policy design and implementation is key to effective
regulatory agencies ... Having these dual roles exacerbates
information
problems, confuses policy design with legal enforcement and undermines the
independence and impartiality of the regulator.
In performing its market
study function, the Commission is invited to make recommendations that go beyond
mere technocratic considerations,
encompassing highly subjective and value-based
choices.[66] When confronted with
vexed social policy issues, the Commission might lack the ability to effectively
evaluate all the costs, benefits
and implications of its recommendations since
it is primarily oriented towards eliminating anti-competitive behaviour. As
such, an
important question arises: is it appropriate to require the Commission
to make trade-offs between economic efficiency and social,
political and
environmental objectives?[67]
According to Indig and Gal, “where a balancing of competitive and
non-competitive considerations is required, this should be
performed at a higher
level of government”.[68] As
such, the Commission’s policymaking function requires stronger
accountability mechanisms to loop the democratic will into
the process and
strengthen the mandate for the Commission to assume an emboldened policymaking
role. Strong accountability mechanisms
would allow the government to monitor
feedback and constrain the Commission during the market study process—and
ensure its
policymaking falls within its terms of reference.
In various instances, the
Commission’s democratic legitimacy has been called into question by media
outlets, businesses, and
public officials. Recently, National Party Member of
Parliament, the Hon David Bennett MP, made a comment in Parliament stating the
“Commerce Commission is one of the evils that we see in this
country”, and that the “Commerce Commission has got
everything wrong
it’s ever done in the last 20
years”.[69] As former Chair of
the Commerce Commission, Mark Berry, remarked, “on one occasion ... an
opposition Labour MP put to me a
question along the following lines:
‘Surely you must be embarrassed that there is no proper accountability for
your decisions
...’”.[70] Furthermore,
recent evidence suggests that the Commission’s democratic legitimacy and
reputation were further undermined by
the public backlash following the retail
grocery market study. To give an example, notable media commentator Bernard
Hickey suggested
the Commission was “captured by vested interests”
and that New Zealand was “held hostage by ... dominant market
players”.[71]
Additionally, a 2022 New Zealand Initiative survey of the “200 largest
businesses by revenue” found that the Commission
was the least respected
of New Zealand’s six commercial
regulators.[72]
Only 10 per cent of respondents agreed that the Commission is “accountable
internally” and 13.8 per cent that it is “accountable
externally”.[73] In contrast,
53.3 and 65.5 per cent either disagreed or strongly disagreed that it is
internally and externally accountable,
respectively.[74] Furthermore, only
6.3 per cent agreed that it “understand[s] commercial realities” and
15.6 per cent agreed its “decision-making
is
predictable”.[75] These
results were reported by leading media outlets, including The New Zealand
Herald, Stuff and
BusinessDesk.[76]
 |
|
Figure 2 Commerce Commission’s accountability
ratings in the 2022 survey by The New Zealand Initiative of commercial
regulators[77]
|
While this is clearly an unfavourable evaluation of the Commission’s
business confidence, it is important to interpret these
findings cautiously
considering the survey focused on big businesses whose commercial objectives
were perhaps at odds with the Commission’s
objectives. The
Commission’s outputs should not be primarily evaluated on its outcomes in
terms of business confidence, but
rather how effectively it meets its statutory
purpose of “promot[ing] competition in markets for the long-term benefit
of consumers”.[78]
In
light of these considerations, the Commission appears to suffer from a
democratic legitimacy problem. The concept of democratic
legitimacy depends on a
regulator’s capacity to engender and maintain the belief that it is the
most appropriate body for the
functions entrusted to
it.[79]
Black describes legitimacy as “social credibility and
acceptability”.[80] Therefore,
a regulator is “legitimate” when it is perceived to have the
“right to govern both by those it seeks
to govern and those on behalf of
whom it purports to
govern”.[81] Accordingly,
legitimacy depends on the acceptance of the regulatory body by others and, more
importantly, the reasons for that
acceptance.[82] Social acceptance
requires the regulator’s actions to be viewed as necessary, desirable or
proper within a socially constructed
system of values, beliefs and
norms.[83] As highlighted in the
earlier discussion on the suitability of its policymaking role, there are
serious questions about the Commission’s
ability to maintain the belief
that it is the most appropriate entity for the market study
function.
Evidence of a lack of democratic legitimacy, also referred to by
Majone as a “democratic deficit”, is often identifiable
in the
existence of procedural and decision-making defects, such as a lack of
transparency, insufficient public participation, reluctance
to provide reasons,
abuse of discretion and inadequate mechanisms of control and
accountability.[84] As previously
indicated, the Commission is perceived as expressing several of the
“democratic deficit” criteria. The
New Zealand Institute’s
survey revealed that the Commission rated poorly for internal and external
accountability, understanding
of commercial realities and predictable
decision-making. As Tyler argues, regulators require legitimacy to function
effectively.[85] Without legitimacy,
it becomes challenging and, perhaps, impossible for them to regulate public
behaviour.[86] Therefore, although
businesses and media may not be the Commission’s primary accountability
stakeholders, the Commission still
requires the perception of democratic
legitimacy to ensure obedience and compliance with its orders and effectively
regulate public
behaviour.
Fortunately for the Commission, the literature
establishes a strong connection between robust accountability mechanisms and
democratic
legitimacy. As Bovens observes, “democracy remains a paper
procedure if those in power cannot be held accountable in
public”.[87]
Where the perception of a democratic deficit exists, accountability mechanisms
are crucial to providing market studies with normative
legitimacy. Such
mechanisms promote the acceptance of government authority, instil confidence in
government administration, and preserve
the overall legitimacy of
governance.[88]
Furthermore, the mechanisms create a shortcut between the arms-length regulator
and Parliament, reducing the distance between regulation
and electoral
accountability.[89] Thus, the
implementation of effective accountability mechanisms would provide the
Commission with the necessary mandate to fulfil
its role, ensuring that it can
make value-based choices and politically sensitive trade-offs as required under
the market study function
while upholding democratic principles.
The concept
of democratic legitimacy encompasses the theory of ex ante
accountability, which Scharpf refers to as “input legitimacy”.
Input legitimacy posits that decisions are legitimate if
they are based on the
agreement of those who are asked to comply with the
decisions.[90]
Input legitimacy demands that stakeholders and the public are represented,
consulted, and able to participate in the decision-making
system.[91]
However, as Peters argues, if inclusiveness and equality are ideals of
democracy, then limiting the responsiveness of public organisations
to a select
few individuals and interests significantly diminishes that
inclusiveness.[92]
As such, the market study process should not only strive for inclusivity but
also ensure that the views of all participating parties
are given equitable and
fair consideration. There is, however, an inherent risk of regulatory capture
within the market study process—a
risk that the regulated industry obtains
unfair access to and control over the market study process.
The theory of
regulatory capture, famously articulated by Nobel laureate George Stigler in his
1971 article “The Theory of Economic
Regulation”, suggests that
“every industry or occupation that has enough political power to utilize
the state will seek
to control
entry”.[93] Regulatory capture
refers to the situation where the regulated industry directs the regulatory
processes intended to control them
“away from the public interest and
towards the interests of the regulated
industry”.[94]
When discussed in relation to competition law, regulatory capture occurs when
regulated monopolies seek to influence and manipulate
the intervention of the
competition regulator.[95] In the
case of market studies, the process would be considered “captured”
if the regulated industry manages to exert
influence and control over the
Commission’s study to maintain its dominant market position.
Three
conditions facilitate regulatory capture: (i) “the pressure group has the
motivation and ability to engage in it”;
(ii) “public officials are
willing to cooperate with capture attempts”; and (iii) “there are
practical opportunities
to successfully realise
capture”.[96] Two of these
facilitating conditions are particularly relevant to the market study process.
First, the market study process increases
the motivation for the regulated
industry to achieve capture by providing the competition regulator with a
powerful policymaking
function with substantial implications for the regulated
industry. Secondly, the market study process increases the practical
opportunities
to successfully realise capture by providing a forum for
interested industry bodies to regularly engage with the competition regulator.
A few critical junctures might allow the regulated industry to influence the
market study process. First, after the process statement
is released and the
study formally begins, the Commission’s market study guidelines state it
will initially gather information
about the sector from “businesses,
consumers and organisations in a number of
ways”.[97] The guidelines
state that “the degree of our engagement with each stakeholder will vary
... We may need more information and
evidence from some parties than from
others”.[98] For an industry
like the retail grocery market, where the Commission does not have much prior
formal regulatory involvement, it might
be expected that much of its information
about the grocery market comes from industry actors. Sunstein, discussing the
Federal Trade
Commission’s process in the United States, found that this
information-gathering stage usually involved informal communications
with the
industry because “they facilitate the process of obtaining
information”.[99]
This is consistent with the Commission’s preference to voluntarily acquire
information from parties because it “seems
less ‘adversarial’
than when we issue a formal notice” and it “can help our
investigation proceed more
quickly”.[100]
However,
the Commission’s informal communications with industry stakeholders to
acquire information and avoid “adversarial”
relations could provide
a practical opportunity to facilitate regulatory capture. As Crow, Albright and
Koebele have observed, the
informal processes employed by many agencies to
engage with stakeholders and mitigate conflicts prior to formal rulemaking may
inadvertently
marginalise citizen
influence.[101]
Extensive negotiation and deliberation occurs before the release of the draft
report and “input from citizens during later
formal comment periods might
prove less important to regulatory decision makers who have already worked with
organized stakeholders
to reach
consensus”.[102] In this
context, the industry stakeholders initially selected to shape the scope and
substance of the Commission’s study play
a crucial role in determining the
direction and outcomes of the study. Stiglitz cautions regulators “to
ensure that the voice
of those whose interests are likely to be hurt by [market]
failure are [sic] well represented in the regulatory
structures”.[103]
The other critical opportunity for regulatory capture comes after the
release of the draft report. Here, the Commission receives further
submissions
and may hold conferences and interviews with industry stakeholders to support or
challenge the findings in the draft
report.[104] At this stage, the
competition authority would likely have had several engagements with the
parties, particularly those who were
initially consulted for information
scoping. Carpenter and Moss argue that repeated interaction with the regulated
industry exposes
the regulator to “cultural capture”, subtly
influencing the regulator to think like the regulated. Carpenter and Moss
warn
regulators about:[105]
... the cultural or social influence of repeated
interaction with the regulated industry ... such that the regulator begins to
think
like the regulated and cannot easily conceive another way of approaching
its problems. In the case of cultural or social capture,
the legislator or
agency may not be fully conscious or aware of the extent to which its behaviour
has been captured.
I do not suggest that the Commission was necessarily
“captured” in carrying out the retail grocery market study, the
susceptibility
of the process to regulatory capture itself demands stronger
accountability mechanisms. According to Stiglitz, regulatory capture
can be
monitored and prevented through the implementation of a comprehensive
“system of checks and
balances”.[106] Stiglitz
further highlights the importance of ensuring that the voices of those adversely
affected by regulatory failures are adequately
represented within these checks
and balance systems.[107] Thus,
accountability mechanisms are not only essential for preventing regulatory
capture but also for incorporating the perspectives
of underrepresented
interests. Following my conclusion that accountability mechanisms need to
include the views of minority interests,
Part IV evaluates how the market study
process incorporates the perspectives of competing interest groups, arguing
that, in its current
form, the process primarily benefits organised industry
groups while neglecting the diverse interests of consumer groups.
Thus far, I
have suggested several reasons for the necessity of implementing stronger
accountability mechanisms in the market study
process. These include monitoring
and regulating the Commission’s policymaking function, enhancing its
democratic legitimacy
in assuming this role, and preventing the risk of
regulatory capture. This section explores an additional justification:
counterbalancing
the effects of interest group pluralism.
I have discussed
how interest groups can provide input at various points in the market study.
Part II demonstrated that the Commission
engages in consultations with
stakeholders throughout the process. Part III further elucidated that these
participation processes
are vulnerable to regulatory capture from the regulated
industry, in this case, the supermarket sector. Consequently, one may question
how these participation processes are weighted towards the
supermarkets’ interests. Can consumer groups not also participate to
balance the influence of the supermarkets? Applying the theory of interest group
pluralism, this part argues that organised business
interest groups possess
advantages over disparate consumer groups in these forums.
The theory of interest group
pluralism views politics as a deliberative concept which is shaped through the
process of conflict and
compromise between various special interest
groups.[108] According to
pluralist theory, political power is decentralised and citizens must mobilise
into interest groups to exert influence
over
policymaking.[109]
Under this framework, citizens bring predefined interests to the political
process and group themselves with others to pursue similar
economic
objectives.[110] Interest groups
can acquire political power by advocating for the interests of citizens who are
motivated to contribute political
resources to these
groups.[111] Therefore, according
to pluralist theory, the main purpose of politics is to mediate the competition
between various social groups
vying for political
power.[112]
Interest group
theory has evolved over time and is closely associated with constitutional
theory. In its earliest conception, James
Madison in The Federalist
Papers was concerned about citizens forming groups to pursue self-centred
special interests that were opposed to the “general
good”.[113] Madison viewed
the role of the United States Constitution as a means to counterbalance the
influence of powerful interest groups,
arguing that “repressing the
liberty to pursue selfish interests is authoritarian, but the constitutional
order can be constructed
to balance the adverse effects of
selfishness”.[114] Legal
scholar John Hart Ely was more optimistic about interest group pluralism,
describing it as a vehicle for promoting the interests
of minority
groups.[115] Ely argued that
relying solely on majoritarian electoral mechanisms is insufficient to safeguard
against the unequal treatment of
minorities.[116] According to Ely,
interest group pluralism recognises that minority interest groups, who are often
underrepresented in electoral
forums, can effectively wield political power by
circumventing the electoral process and directly protecting their interests
“by
entering into the give and take of the political
marketplace”.[117]
In
contrast to Ely, Sunstein raised concerns about the “problem of
faction” that arises when a single interest group dominates
the
legislative or executive
process.[118] When one group
monopolises political power, it can undermine the bargaining and compromise that
forms the foundation of interest
group
pluralism.[119] The monopoly on
political power disrupts the ability of weaker or diffuse interest groups, such
as consumer groups, to effectively
advocate for their
interests.[120]
The
neopluralist school emerged in response to the recognition that business and
organised interest groups possess distinct advantages
over consumer
groups.[121]
The theory is critical of the power imbalance faced by public interest and
citizen groups when competing against business groups
and professional
organisations in the political
marketplace.[122] Neopluralists
contend that not all interest groups have equal access to the policy process
because there is often variation in resources
that grants certain groups greater
influence than
others.[123]
Furthermore, neopluralist theory acknowledges the challenges encountered by
public interest and citizen groups in organising and
mobilising due to the
diffuse nature of their
interests.[124] It further argues
that having powerful special interest groups in politics does not lead to
pluralism, but to “structures of
privilege which exclude the public from
the political
process”.[125]
In light of this theoretical background, the following section considers the
role of interest group pluralism in competition regulation.
According to pluralist
theory, the role of economic regulation is to respond to constituent pressures
and ensure that regulatory outcomes
reflect some level of
deliberation.[126] This viewpoint
is supported by several prominent scholars who have noted the regular influence
of interest group pressures on shaping
regulatory outcomes. As Sunstein
observes, “the existing work in economics and political science suggests
that interest groups
play an important but not decisive role in most modern
regulation”.[127]
Additionally, Spiller highlights that the self-interest theory of regulation
posits that regulations emerge in response to demands
from different interest
groups seeking government
intervention.[128]
DeLorme further adds that while antitrust laws purport to “service the
public interest, they are susceptible to the influence
of special-interest
groups as are any public
policies”.[129]
Special
interest groups often have two objectives in applying pressure to regulatory
processes. First, they seek to capture the benefits
of wealth transfer that may
arise from regulatory
decisions.[130]
Secondly, they aim to secure and safeguard favourable property
rights.[131] While the
distribution of wealth and property rights traditionally falls under legislative
policy, regulatory authorities can be
delegated some authority in these
areas.[132] Therefore, competition
regulators possess a certain level of delegated power to permit wealth transfers
and enable the establishment
of favourable property rights.
Crow, Albright
and Koebele note that “[c]ompared to the legislative process, regulatory
processes receive less media coverage,
are more insular, and are influenced by
different process
dynamics”.[133] This
environment allows regulators to pursue interests that may not align with the
interests of the politicians who appointed them,
creating an additional
incentive for regulated entities to exert pressure on these
processes.[134] In an effort to
enhance transparency and legitimacy, most regulators have developed mechanisms
to incorporate input from the communities
they
regulate.[135] However, special
interest groups may attempt to exert pressure on these regulatory input
processes in order to capture the benefits
of wealth transfer and secure
favourable property rights.
The literature indicates that industry interest
groups can exert pressure on competition regulators with the aim of facilitating
the
transfer of wealth from consumers to monopolistic firms. DeLorme highlights
that instead of a direct transfer of wealth from the
public treasury, special
interest groups representing the industry are motivated to pressure competition
regulators to establish
regulations that promote market
inefficiencies.[136] These
inefficiencies, such as high barriers to entry, serve to protect the dominant
market position of incumbent firms. Accordingly,
the ability of monopolistic
firms to earn excess profits which surpass that which is achievable in a
competitive market can be viewed
as an indirect transfer of wealth or
“consumer’s surplus” from consumers to the
monopolist.[137] DeLorme argues
that this indirect transfer of wealth occurs due to the failure of competition
regulators to prevent monopolistic
conduct that leads to market
inefficiencies.[138]
The
Sherman Act of 1890, which served as the foundation for modern competition law
and influenced New Zealand’s Commerce Act
1986, states that the aim of
competition law is to protect and redistribute private property rights. While
the contemporary focus
of competition law focuses on promoting economic
efficiency, historically, balancing interest group pressures was a more
significant
task.[139]
As the
term “antitrust” suggests, the Sherman Act aimed to transfer
property rights away from
trusts.[140] During the 1870s and
1880s, American farmers complained that high prices for railway services and
farm equipment were the result
of monopoly power being exercised by the
“trusts”—essentially an old colloquial term for big
businesses.[141] These farmers,
who held considerable political influence at the time, exerted pressure on
Congress to pass the Sherman Act, which
outlawed various forms of monopolistic
conduct.[142] The Act in practice
tended to protect smaller economic interests from harm caused by larger
entities. Consequently, because “the
farmers were small entities and the
railroads, banks, and manufacturers were large entities, the Act appears to be a
one-way transfer
of property rights to the
farmers”.[143] As pluralist
theory suggests, the farmers, like any interest group, were driven by
motivations to acquire and safeguard property
rights.
The historical context
of the Sherman Act highlights the inherent presence of interest group pressures
in the development of competition
law. Pluralist theory views politics as a
means of mediating competition between interest groups, and competition law
serves as a
mechanism for distributing the benefits of regulation among
competing interest groups. Since competition law can confer significant
benefits
on interest groups, pluralism provides a suitable normative framework to analyse
the interplay between interest groups within
the context of a market study. The
next section seeks to demonstrate how the retail grocery market study
exemplifies a pluralistic
rivalry among three competing interest groups for the
benefits derived from regulation.
Three
primary interest groups were of particular significance to the retail grocery
market study: the supermarket companies (such
as Woolworths, Foodstuffs North
Island, and Foodstuffs South Island), suppliers (including New Zealand Food and
Grocery Council,
Nestlé, and Federated Farmers) and consumers
(represented by entities like Consumer NZ and individual consumers). By
analysing
their respective submissions, referred to as “inputs”, it
becomes evident that each of these interest groups had distinct
objectives and
desired outcomes from the market study.
The supermarkets sought to limit the
introduction of new regulations that would inevitably increase their business
costs and decrease
their profit margins. In their submissions, the supermarkets
challenged the draft report’s finding that competition in the
market was
muted. By demonstrating that competition was functioning reasonably well, the
supermarkets tried to diminish the mandate
of the Commission to regulate and
intervene in the market on the basis of correcting competition issues. Both
Woolworths and Foodstuffs
presented information that grocery prices were not
high by international
standards.[144]
They also argued that the Commission overestimated their profitability and
contended that, if the draft report had correctly considered
these factors, it
would have concluded there was no issue with
competition.[145] While Woolworths
and Foodstuffs expressed support for some regulation, such as the implementation
of a grocery code of conduct, the
removal of restrictive land covenants and the
establishment of a grocery ombudsman, they strongly opposed the entry of a third
supermarket
to the market, calling it “unprecedented” and “not
warranted”.[146]
The
suppliers were mostly interested in supporting changes that improved their
bargaining power in relation to supermarkets. Given
the duopolistic market
structure, suppliers face a duopsony problem—there are only two major
buyers in the market for the products
they
offer.[147] Suppliers reported
experiencing various unfair practices from the supermarkets, including
non-payment of agreed costs, imposition
of additional costs without prior
agreement or warning, and a general culture of bullying and
intimidation.[148] Suppliers often
felt compelled to comply with the supermarkets’ demands, regardless of how
unreasonable or unfair they may
be, since they risked foreclosing half of their
buyers by losing one of Foodstuffs’ or Woolworths’
business.[149]
Among the eight
submissions made by supplier representative groups, considerable attention was
given to the issues of implementing
a grocery code of conduct to govern the
retailer–supplier relationship and introducing provisions enabling
small-scale suppliers
to engage in collective bargaining with the
supermarkets.[150]
Most of the suppliers’ submissions did not address the draft
report’s recommendation to support the entry of a third
supermarket into
the market.[151] Only two
submissions expressed support for this recommendation, indicating that the
majority of suppliers were primarily focused
on issues related to their
relationship with the supermarkets and were less concerned about consumer-facing
matters such as high
retail
prices.[152]
Finally, consumers
were represented by a disparate group of representative bodies. Consumer NZ
constituted the only recognisable consumer
advocacy group. Nonetheless,
charities like FinCap, Christians Against Poverty and The Salvation Army, as
representatives of people
affected by food insecurity, served as a reasonable
proxy for consumers. Consumer NZ supported changes aimed at reducing the adverse
outcomes for consumers resulting from the duopolistic market
structure.[153]
In contrast, some charity submissions expressed scepticism toward competition
law and market mechanisms, with the Salvation Army
expressly stating that:
“Access to basic food needs to be seen as a human right and not simply a
market commodity to be supplied
based on theories of market
behaviour.”[154]
Despite these reservations, all consumer representative groups unequivocally
supported taking action for the entry of a third major
supermarket entrant, with
at least two groups expressing support for achieving this by requiring existing
operators to sell some
of their
assets.[155]
In sum, the
supermarkets advocated for minimal regulatory intervention, suppliers sought
regulations that would improve their bargaining
power against the supermarkets,
and consumer groups supported most of the report’s recommendations with a
particular emphasis
on mechanisms that would increase competition in the retail
market. However, the final report deviated from the draft report by abandoning
the suggestion of introducing a third supermarket entrant. Furthermore, the
recommendations to directly stimulate retail competition,
such as requiring
asset divestment or supporting a state-sponsored third entrant, were omitted
from the final report. So, too, was
the recommendation to separate the major
supermarkets’ wholesale and retail operations, which would have
facilitated access
to the wholesale supply chain for new entrants without the
need for extensive
infrastructure.[156]
Following
the final report, the supermarkets seemingly obtained many of their desired
outcomes. The final report’s recommendations,
including amendments to the
Overseas Investment Act 2005 to assist the entry of a third supermarket, banning
“no supermarket”
provisions in land covenants, and voluntary
wholesale access for independent retailers, were expressly supported by
submissions from
Woolworths and
Foodstuffs.[157] Similarly, the
suppliers achieved their goals with the inclusion of a code of conduct and
collective bargaining authorisation, as
sought in their
submissions.[158]
It is
important to note that, notwithstanding the above evidence, it is not
necessarily the case that consumer interests were entirely
ignored. In fact, it
could be argued that the strong media backlash and political response to the
report demonstrates that the consumer
perspective was
heard.[159] Quantifying the extent
to which the Commission incorporated the various perspectives of competing
interest groups is a difficult,
if not impossible, task. I do not intend to
suggest that the Commission intentionally chose consumers as
“losers” and
the supermarkets and suppliers as
“winners”, as some media reports have
insinuated.[160] Rather, the
purpose of this analysis is simply to raise the question of whether each
interest group can effectively protect their
interests within the market study
forum.
While the market
study allows any interest group to input into the process, this seemingly
equitable and pluralistic feature is arguably
based on an outdated understanding
of interest group pluralism. The market study process assumes that unregulated
participation mechanisms
create a political marketplace where interest groups
can engage in deliberation. This approach fails to account for contemporary
understandings of the complex dynamics and power imbalances inherent in interest
group politics. Ely’s view that any minority
interest can form an interest
group and effectively safeguard its interests in the political marketplace (as
discussed in Part A
above) is no longer the prevailing theoretical position.
As discussed above, the market study input processes create a political
marketplace, and this requires proper regulation to ensure
that all interest
groups have an equal ability to participate in the marketplace. When viewed
through a neopluralist lens, the assumption
that these participatory and input
processes are neutral and impartial does not withstand scrutiny. It is
problematic that the market
study process treats all inputting parties
agnostically, without containing mechanisms to recognise or address the inherent
disadvantages
faced by certain groups in their participation. Paradoxically, the
ostensible presence of participation mechanisms in the market
study process
accords the report a sense of democratic legitimacy, giving it the appearance
that the “public are represented,
consulted and able to participate in the
decision-making
system”.[161]
Simultaneously, it diminishes the democratic nature of the output by providing
organised and well-resourced interests with unrestricted
access to the
Commission, which consumer groups cannot easily counterbalance. Applying
Lowi’s neopluralism definition, this
transforms the market study process
into “structures of privilege which exclude the public from the political
process”.[162]
Despite
being the largest interest group in terms of numbers, consumers are the least
active and worst represented group in the market
study forum. Group theory
demonstrates how consumer groups face challenges in defending their collective
interests. Mancur Olson,
in his influential work The Logic of Collective
Action, argues that “consumers are at least as numerous as any other
group in the society, but they have no organisation to countervail
the power of
organised or monopolistic
producers”.[163]
According to Olson’s theory, “in the world of interest group
politics ... the few defeat the
many”.[164] The logic of
collective action posits that groups with a hundred or more potential
beneficiaries, such as consumers, will not organise
because “individuals
will not get a positive payoff if they contribute, since either they will get
the public good anyway,
or else the benefit is smaller than the
contribution”.[165] Smaller
groups with a limited number of beneficiaries, on the other hand, are more
likely to organise because individuals can expect
a positive payoff for their
contribution.[166] As such,
McFarland hypothesises that smaller groups, like businesses and corporations,
will form organised interests, while larger
diffuse groups such as consumers
will not organise.[167]
Consumers are confronted with the “rational apathy” problem when
it comes to defending their interests in the market study
forum.[168]
“Rational apathy” suggests it is irrational for individual consumers
to actively defend their interests in the market
study forum. Van den Bergh
explains that private parties will only participate in such forums if the
expected benefits outweigh the
associated
costs.[169] Supermarkets and
suppliers have a strong incentive to participate in the market study as a
favourable outcome can greatly impact
their revenue and financial performance;
they have a significant financial stake in the study’s outcome.
Conversely, consumers
face limited incentives to personally invest in
participating in the market study. The costs incurred by consumers to
participate
often outweigh their individual losses and the relatively small
damages they might have suffered from high grocery
prices.[170] The time and labour
costs for an individual consumer to engage in the study typically exceed their
relatively minor stake in the
outcome. Furthermore, individual consumers are not
paid to submit to market studies, unlike those employed or contracted by the
supermarkets.
As a result, they simply do not possess the same vested financial
interest in the study’s outcome.
The “rational apathy”
problem is exacerbated by the “free rider” problem. As observed by
Olson, public policy
produces “public goods”, whereby “if one
person in an area receives the benefit, then, by its very nature, all
persons in
that area receive the
benefit”.[171] The market
study is an example of a public policy that generates a “public
good”. To the extent that the market study
leads to a more competitive
market, the benefits of increased competition, such as lower prices and improved
service, are enjoyed
by all consumers, regardless of their participation in the
process. Given that the benefits of increased competition extend to all
consumers, individual consumers have an incentive to rely on others to enforce
their interests, enabling them to benefit from lower
grocery prices without
investing their own
resources.[172] In other words,
consumers are incentivised to “free ride” by passively reaping the
benefits from the market study, while
placing the financial risk and advocacy
burden on other groups, such as Consumer NZ.
The pluralist literature
highlights countervailing consumer interest groups as the primary external
constraint on powerful industry
interest
groups.[173] Notably, Consumer NZ
was the only true “consumer advocacy” group involved in the market
study. However, Consumer NZ is
not equally powered to counter the influence of
the supermarkets and suppliers. Unlike industry groups, Consumer NZ lacks a
direct
financial or vested interest in the grocery industry. It is a generalist
consumer group with limited ability to effectively “compete
with industry
or advocacy professionals when it comes to policy or technical
capacity”.[174]
Therefore,
while difficult to prove definitively, there is a possibility that the consumer
perspective was underrepresented in the
market study. Nonetheless, the
government’s reaction to the final report supports the argument that the
consumer perspective
was indeed underrepresented. Minister of Consumer Affairs,
the Hon David Clark MP, announced several actions in the government’s
response to the market study that went above and beyond the Commission’s
recommendations.[175] This aligns
with pluralist theory, which acknowledges that governments, unlike regulators
who consider interest groups as proxies
for citizen interests, must take into
account the interests of unorganised
groups.[176] According to Smith,
“[t]he reality of achieving re-election is a major motivation for
governments to take account of unorganized
groups”.[177]
In sum, the
market study process does not adequately address the concerns raised by
neopluralist theory and instead reflects an outdated
conception of pluralist
theory; the democratic legitimacy of the market study process is based on the
mere ability to input and participate
in the process, and fails to recognise the
power imbalance between businesses and consumer groups. Consumer groups face
challenges
due to the logic of collective action, which undermines their ability
to effectively advocate for their interests within the market
study forum. In
contrast, the government’s response went beyond the market study
recommendations, because its electoral accountability
mechanism provides a
greater incentive to consider “unorganised interests”, such as
consumers.
This raises an important question: if the logic of collective
action posits that “the few defeat the many”, but the
government’s
majoritarian electoral mechanism results in “the many
defeating the few”, is requiring the government to respond to the
market
study a sufficient accountability mechanism to ensure democratic concerns are
heard? The following section evaluates whether
the accountability mechanisms in
the market study process are a sufficient safeguard against the effects of
interest group pluralism
in marginalising unorganised voices such as
consumers.
Thus far, this
article has proposed several key reasons why the market study power demands
greater accountability mechanisms. These
reasons include the limited statutory
procedural requirements, the unique ex ante nature of the power compared
to traditional competition law functions, the policymaking function that
necessitates balancing competitive
and non-competitive objectives, the potential
for regulatory capture, and the contentious democratic legitimacy surrounding
the Commission’s
expanded policymaking role. Furthermore, applying an
interest-group pluralist lens to the retail grocery study has revealed that
powerful corporate interests are advantaged over vulnerable consumer groups in
the market study forum. The combination of a more
active policymaking role and
participation mechanisms that fail to equally represent all affected groups
raises significant concerns
about the democratic legitimacy of the market study
power. There is a deficiency in how the Commission is held accountable for its
exercise of this power. This section applies Mark Bovens’ accountability
framework to evaluate the shortcomings of the market
study’s
accountability mechanisms.
Bovens defines accountability in its widest sense
as “the obligation to explain and to justify ...
conduct”.[178]
Accountability involves providing answers to those with a legitimate claim to
demand an
account.[179]
In a narrower sense, Bovens contends
that:[180]
Accountability is a relationship between an actor
and a forum, in which the actor has an obligation to explain and to justify his
or her conduct, the forum can pose questions and pass judgement, and the actor
may face consequences.
Accountability structures are particularly important
within the regulatory state. In the traditional “democratic chain of
delegation”
model, accountability flows from citizens entrusting their
power to elected representatives, who then delegate authority to the government
for the enforcement of laws and
policies.[181] Within the
“chain of delegation”, Ministers delegate policy implementation to
various ministries, while maintaining close
control and oversight through the
convention of ministerial
responsibility.[182] The chain of
delegation is the formal duty of “public bodies to account for their
actions to
ministers”.[183]
However,
the emergence of independent regulatory agencies has introduced a shift in
accountability dynamics. While Ministers remain
formally answerable to
Parliament for these agencies’ performance, their actual control and
oversight is limited.[184]
Regulators are designed to remain at “arms-length” from the
government while delegating operational responsibilities
to the agency
heads.[185] As Bovens observes,
“agencies are effectively shielded from parliamentary scrutiny because the
minister is structurally uninformed
about their daily
operations”.[186] This is
often referred to as the “political accountability” gap.
According to Bovens, accountability mechanisms create a shortcut between the
regulator and Parliament.[187]
This section discusses how accountability mechanisms are used to make regulators
responsive to the democratic will and ensure the
public interest is upheld. In
light of this background, this section examines the accountability mechanisms
employed within the market
study power using Bovens’ accountability
framework. Finally, it evaluates potential changes to the market study power
that
could strengthen the democratic and learning perspectives on
accountability.
With
independent regulators like the Commission, the traditional vertical, linear
model of accountability is insufficient to explain
the complex accountability
relationships between principals (eg the Minister) and actors (eg
the Commission). These accountability networks do not neatly align with
Bovens’ “democratic chain of delegation”
model, as the
Minister does not exercise direct control or day-to-day oversight of the
regulator. Instead, the House of Lords’
Select Committee on the
Constitution uses a 360-degree model to depict the accountability of independent
regulators (Figure 3). This
model recognises accountability as a network of
relationships, where regulators’ have different accountability duties
depending
on the nature of the account
holder.[188]
 |
|
Figure 3 A 360-degree view of regulatory
accountability[189]
|
Colin Scott identifies three forms of accountability in the regulatory state:
upwards, horizontal and downwards
accountability.[190] The first
form, upwards accountability, refers to the regulators’ accountability to
a higher authority.[191] The
Commission is accountable “upwards” to the courts, Parliament and
the Minister of Consumer Affairs (the shaded boxes
in Figure 3). This reflects
the traditional vertical model of accountability where regulators, as agents
with delegated powers, are
accountable to their
principals.[192]
Upwards accountability ensures that the market study process is subject to the
democratic will as well as the checks and balances
of a representative
democracy.[193]
The second
form is horizontal accountability, which entails accountability rendered to a
parallel institution.[194] The
market study power currently lacks mechanisms of horizontal accountability.
However, as is discussed later in this article, establishing
independent
consumer bodies could introduce a form of horizontal accountability.
The
third form is downwards accountability, which refers to accountability to
lower-level institutions and groups. Downwards accountability
includes the
Commission’s accountability to interest groups, regulated industries,
consumers and citizens (the white boxes
in Figure 3). Through these
relationships, the Commission is directly accountable to the general public,
complementing its indirect
accountability to the electorate through elected
representatives. These downward accountability relationships to regulatory
stakeholders,
according to Sosay, serve to address concerns about the
“democratic accountability and legitimacy of [independent regulatory
agencies]”.[195]
In practice,
the Commission fits with Bovens’ definition of “corporate
accountability” and can be held accountable
as a unitary
actor.[196] Independent
regulators, including the Commission, are typically delegated powers in their
capacity as institutions rather than
individuals.[197] The market study
power is vulnerable to the “problem of many hands”; that is, it can
be difficult to determine individual
responsibility for the study’s
outcomes. As Bovens observes, the contribution of multiple officials to
government decisions
and policies makes it challenging to identify who bears
moral responsibility for political
outcomes.[198] This problem arises
because the government plays a dual role in the market study process. The
government “front ends”
the process by initiating the study, setting
the terms of reference, and delegating policymaking authority to the Commission.
By
offloading the policy issue to a market study, the government temporarily
shields the issue from political scrutiny for the study’s
duration. Then,
the government “back ends” the process by reviewing the
study’s findings and providing reasons
for accepting or rejecting each
recommendation.[199]
Ultimately,
this process obscures the assignment of accountability for the final outcome.
The government could defer its accountability
by asserting that it simply
followed the recommendations of an independent regulator over which a Minister
did not exercise direct
control or oversight. Similarly, the Commission could
defer its accountability by stating that it does not make the ultimate policy
decision, but rather its role is to conduct an independent investigation and
offer recommendations.
Nonetheless, it is important to not overstate the
significance of the “problem of many hands”. In the retail grocery
market
study, the responsibility for various decisions and policy outcomes was
reasonably discernible to careful observers due to the way
the government
individually accepted or rejected the report’s recommendations. For
example, when the government went beyond
the Commission’s recommendations
by making it mandatory (rather than voluntary) for wholesalers to consider
requests for wholesale
access, it was evident it was taking responsibility for
this policy outcome. Conversely, the refusal to directly stimulate a third
supermarket entrant was the Commission’s responsibility since it omitted
this recommendation from the final report. Indeed,
journalists had no difficulty
in holding the Commission, rather than the government, accountable for the
failure to directly stimulate
a third supermarket entrant.
Bovens
introduces the distinction between procedural accountability and product
accountability (or substantive
accountability).[200] The market
study renders the Commission accountable for both the process and substance. To
hold the regulator substantively accountable,
regulatory outcomes should be
assessed in terms of the goals the regulator has been
assigned.[201]
According to Stiglitz, measuring product accountability requires: (i) clearly
defined objectives; (ii) a reliable way of assessing
whether they have met those
objectives; and (iii) the existence of consequences when they have not complied
with those objectives.[202]
In
the market study process, product accountability is rendered to the Minister,
who is accountable for responding to and accepting,
rejecting, or modifying each
individual recommendation, thereby assuming responsibility for the study’s
product or outcomes;
Parliament shares this accountability with the Minister.
However, there is a problem with the market study process failing to reflect
upon its regulatory objectives ex post. There are no mechanisms to
evaluate the outcome of the study against the objectives set by the Minister in
the terms of
reference.[203]
This will be discussed further in Part B of this section.
Procedural
accountability complements product accountability by ensuring that the
decision-making process is open, transparent, and
inclusive of
stakeholders.[204] Procedural
accountability recognises the significance of input legitimacy, where decisions
are deemed legitimate when they are based
on the agreement of those who are
affected by them.[205] Procedural
accountability acknowledges that output-oriented legitimacy alone does not
guarantee democratic legitimacy and good
governance.[206]
Unlike
product accountability, which primarily involves rendering account to the
Minister, the Commission bears procedural accountability
towards a wider range
of stakeholders. The Commission’s engagement with stakeholders during the
information gathering stage,
the statutory requirement to release and seek
submissions on the draft report and initial working papers, and its ability to
hold
workshops, conferences, and interviews with industry stakeholders, each
foster procedural accountability. However, as previously
emphasised, while these
mechanisms theoretically ensure downward accountability to stakeholders, in
practice, they tend to favour
well-resourced and organised industry actors over
diffuse interest groups. The following section will examine how the
Commission’s
accountability obligations contribute to an unequal rendering
of accountability.
Bovens describes the nature of the accountability obligation as
two-fold: either the actor is forced to give account (vertical accountability)
or they voluntarily choose to do
so.[207] Within the market study
process, there is a distinction between the accountability obligation owed to
upwards and downwards account
holders. Upwards account-holders exercise power
over the Commission, and thus, the Commission owes them a vertical
accountability
obligation.[208] In
the market study context, vertical accountability requires the Commission to
justify its recommendations to the Minister and Parliament
as the acceptance of
the recommendations depends on the account holders. This is confirmed by the
statutory requirement for the Minister
to respond to the final report
“within a reasonable time after the report is made publicly
available”.[209]
By
contrast, the duties owed to downwards account holders are both vertical and
voluntary. The Commission owes a lesser duty of transparency
and representation
to downwards account holders.[210]
These are primarily procedural duties and downwards account holders are limited
in their ability to scrutinise the study’s
outcome. First, transparency
requires regulatory information to be “accessible and assessable” to
all account holders.[211] The
requirement to release a draft report is a key vertical accountability
mechanism, allowing the public to test and evaluate the
Commission’s
preliminary findings.
Secondly, the representation duty requires that
downward account holders are “not only provided information but also
represented
in the process, allowed to participate, and consulted before a
decision is made”.[212] By
incorporating the input of downwards actors into the final report, the
representation duty is a form of ex ante accountability. However, the
only explicit vertical representation obligation imposed on the Commission is in
relation to the draft
report. Section 51C states that the Commission “must
have regard to any comments received on the draft
report”.[213] Other
mechanisms for public representation, such as conferences, interviews,
workshops, consumer surveys, and consultation on working
papers, are voluntarily
assumed by the Commission, and are not prescribed by the Commerce
Act.[214]
As emphasised, these
informal input mechanisms are vulnerable to regulatory capture. To address this
vulnerability, tighter controls
are needed over the Commission’s downwards
accountability mechanisms. I propose that the Commission’s representation
duty to downwards account holders should go beyond providing a raw input forum
for deliberation. It should also ensure that all downwards
account holders have
an equal opportunity to represent their interests and participate in the
decision-making process. Using Bovens’
words, these downwards input
mechanisms need to be transformed into a vertical accountability obligation
where the Commission is
accountable to its upwards actors for ensuring fair
representation of downwards actors. This next part will discuss how improving
the representation of marginalised actors in the market study can enhance the
democratic and learning perspectives of accountability
on the Commission.
Bovens identifies three perspectives that underpin
accountability mechanisms: democratic, constitutional, and learning
perspectives.
The democratic perspective emphasises that accountability
mechanisms provide a democratic means for citizens to monitor and control
government conduct. By promoting public input and information transparency,
accountability mechanisms allow citizens to judge “the
fairness,
effectiveness, and efficiency of
governance”.[215]
The
learning perspective views accountability mechanisms as a means to enhance the
learning capacity and effectiveness of public
administration.[216] To give
effect to the learning perspective, accountability structures should be designed
to keep governments effective in delivering
on their
promises.[217] The learning
perspective tests whether the correct incentives are in place for officials to
reflect on their policies,[218]
including the existence of sufficient sanctions to motivate actors to learn from
mistakes.[219]
The
constitutional perspective views the purpose of accountability as a safeguard
against the concentration and abuse of government
power,[220] providing
countervailing checks and balances on the exercise of such
power.[221] While the learning
perspective is relevant to the market study power, this article primarily
focuses on the democratic perspective.
Therefore, this part briefly assesses the
compliance of the market study process with the learning perspective before
demonstrating
that its main deficiency lies in its failure to adhere to the
democratic perspective.
The learning perspective posits that the market
study process should provide sufficient incentives for officials to reflect on
and
improve their policies and procedures. This often involves conducting ex
post performance assessments to evaluate regulatory effectiveness. As
Jacobzone observes, regular performance assessments are “crucial
to ensure
accountability and to establish the legitimacy of the regulatory
authority”.[222] Gilardi
emphasises that regulatory performance should be evaluated based on the
objectives assigned to them.[223]
This requires clearly defined objectives, measurable targets, and the risk of
sanctions if targets are not
met.[224]
However, a study
examining market study practices across 36 countries found that both setting
objectives and ex post performance assessments are uncommon. According to
the International Competition Network, 70 per cent of jurisdictions do not
measure
changes in market outcomes following a market study and 85 per cent do
not publish criteria for measuring
impacts.[225] The report concludes
that “[t]his indicates that for many, at present, measuring the costs and
benefits of their market studies
work ... is relatively new, not fully
developed, or
non-existent”.[226]
Similarly, in New Zealand, there is no requirement for the Commission to
indicate whether the study met its terms of reference. To
promote the learning
perspective, the government should introduce a stronger requirement for the
Commission to assess whether a market
study has achieved its initial objectives.
This could entail evaluating the proportionality, costs, benefits, and impacts
of the
study both before initiation and after its conclusion. For example,
before initiating a market study, a thorough consideration should
be given to
whether the anticipated social benefits outweigh potential harms from
intervening in the market and whether less onerous
alternatives, such as
enforcement action, could address market
failures.[227] This would promote
accountability by providing further visibility of outcomes and encourage the
Minister to only initiate studies
that are reasonably necessary or
justifiable.[228]
Once the
study is complete, the Commission should be required to assess whether the terms
of reference, objectives of the study, and
statutory purpose of
“promot[ing] competition in markets for the long-term benefit of
consumers” were achieved by the
study’s
outcome.[229] Requiring explicit
consideration of the market study’s outcomes in relation to its statutory
purpose would reorient the process
around consumers as the primary stakeholder
rather than the regulated industry. Such a requirement might also enable the
Commission
to learn from any mistakes made during the process and to apply those
lessons to improve future
performance.[230]
From the democratic perspective, accountability
mechanisms legitimise government action by allowing affected citizens to
participate
in the decision-making
process.[231] In the market study
process, the democratic interests are primarily incorporated through the various
participation and input processes
which allow stakeholders to influence the
final report. However, the democratic perspective goes beyond simply shortening
the distance
between regulators and the regulated. Inclusiveness is another key
aspect of democracy. As Peters observes: “If one ideal of
democracy is
inclusiveness and equality then making public organizations responsive to only a
limited number of individuals and interests
appears to lessen that inclusiveness
substantially.”[232]
If
inclusiveness is an “ideal of democracy”, does the
Commission’s failure to address the disadvantages faced by
consumer groups
weaken its compliance with the democratic perspective? The answer is not
straightforward. The government plays a
significant role in initiating and
scrutinising the market study, allowing the opposition and media to indirectly
account for underrepresented
perspectives during the scrutiny of the report.
While the Commission may prefer engaging with interest groups over individuals,
the
government must consider unorganised interests, as they hold the key
electoral accountability mechanism. If a critical body of consumers
is
dissatisfied with the market study outcome and process then, in theory, the
legislature and media can represent these voters by
holding the market study
accountable. Therefore, the market study remains connected to the democratic
will because its findings must
go through parliamentary scrutiny.
As
previously indicated, there is some evidence that ministerial consideration of
the Commission’s recommendations successfully
incorporated the democratic
will. In the grocery market study, the government arguably went beyond the
Commission’s recommendations
in response to the public backlash to the
report. The government aimed to address the dissatisfaction of consumers and
suppliers
by taking a stronger stance against supermarkets than what the
Commission had suggested. In the end, the government’s solution
was to go
slightly beyond the Commission’s recommendations; the government made some
voluntary recommendations mandatory and
suggested reviewing the supermarket
industry more regularly than in the Commission’s initial recommendation.
Still, the government
did not stray too far off the beaten path, declining to
reintroduce the originally rejected third supermarket
recommendation.
However, the government faced a dilemma if it wished to
further distance itself from the study’s recommendations. On one hand,
following the Commission’s recommendations would require the government to
embrace the findings of a politically unpopular
report. On the other hand,
deviating too far from the Commission’s recommendations might be perceived
as undemocratic, disregarding
the collaborative process with interest groups and
making decisions based solely on its own preferences. As Malpass observes,
“without
the political cover provided by the Commerce Commission it
becomes much more Labour versus the
supermarkets”.[233] Thus,
while the requirement for the government to respond to the study’s
recommendations ensures that the democratic will is
considered, in practice, the
government faces political risks if its final policy significantly deviates from
the Commission’s
findings, losing the “political cover”
provided by the Commission.
Administrative justice theory provides valuable
insights as to why relying solely on the ministerial accountability mechanism is
insufficient,
emphasising that bureaucratic decision-making must be both
procedurally and substantively
just.[234]
One perspective within administrative justice argues that procedural fairness is
instrumental in achieving substantive justice, as
fair procedures lead to just
outcomes.[235] Therefore, for the
market study process to be administratively just, the process must consider the
fairness of how participants are
treated and the justice of what they
receive.[236] The latter
substantive element, in particular, is concerned with how the benefits and
burdens are distributed among groups in
society.[237]
Accordingly,
administrative justice is concerned with the equitable distribution of benefits
in the retail grocery market study among
various interest groups. However, it is
doubtful whether this was achieved because of the procedural difficulties faced
by consumers
in providing input into the study. Administrative justice theory
would suggest that the unfair process led to an unjust substantive
outcome.
Indeed, Adler argues that to achieve administrative justice, internal forms of
accountability are necessary in addition
to external
mechanisms.[238] Recall, the
primary measure of accountability in the market study process is the external
ministerial accountability mechanism. However,
Adler’s review of
administrative decision-making in the United Kingdom suggests that external
accountability mechanisms have
often been used to promote procedural fairness
and substantive justice, and that “the available evidence does not suggest
that
this approach is very
effective”.[239]
It is
conceivable that one of the reasons why the grocery market study was delegated
to the Commission was to provide “political
cover” and to establish
a public mandate for the Labour Party government’s intervention in the
grocery market. However,
since the government’s authority to intervene is
partially derived from the market study, it is essential for the market study
process to be internally accountable. Straying too far from the study’s
findings risks undermining the public mandate for intervention.
As such, the
democratic perspective must be promoted within the market study process itself.
Furthermore, if the main democratic
weakness of the market study lies in the
advantage given to industry interest groups over consumer groups, accountability
mechanisms
must amplify the consumer perspective.
I recommend that the
government explore the potential establishment of independent consumer bodies
(ICBs) to strengthen consumers’
representation in the market study
process. ICBs are statutory bodies created specifically to protect consumer
interests, focusing
on the specific needs of consumers rather than broader
public concerns.[240] ICBs are
prevalent in the United Kingdom; some examples include Energywatch, which
represented consumers in the Office of Gas and
Electricity Markets, and
Postwatch, which monitored the Royal
Mail.[241] ICBs were established
in recognition that economic regulators could not always easily and consistently
establish the consumer
interest.[242] According to the
House of Lords, ICBs were founded out of a concern that “regulators, in
balancing the interests of the regulated
companies ... with the consumers, might
hear more of the company voice and have too great a regard for their
interests”.[243]
ICBs
also serve as parallel statutory entities that can challenge and provide
horizontal accountability to the economic regulator,
filling the accountability
gap present in the current market study
process.[244] Again, the consumer
voice is not only theoretically vulnerable because of the “logic of
collective action”, but consumers
were, arguably, substantially
underrepresented in the grocery market study. The only inputting consumer groups
were Consumer NZ and
a peripheral fringe of charities. This lack of consumer
engagement can be attributed to the current structure of the market study
process, which places the responsibility on consumers to actively participate.
The pluralist analysis presented in Part IV of this
article demonstrated the
high costs and disincentives that consumers face when participating in the
market study process, as they
lack the same financial stake as the regulated
industry.
In contrast, ICBs actively seek out the consumer perspective
through methods such as surveys and
interviews.[245] After completing
this fieldwork, they are tasked with collating their findings and discerning the
consumer interest, before representing
this interest in the market study
process. However, it is important to note that the House of Lords has raised
valid questions regarding
the common framework used to determine the consumer
interest and to what extent ICBs are representative of the consumer interest.
A
comprehensive study on the effectiveness of ICBs in the United Kingdom is worthy
of its own article. My research has found limited
scholarship on this topic.
Accordingly, while ICBs may not provide an immediate solution to the market
study’s accountability
problems, they nevertheless serve as a viable
starting point for further consideration.
The
unanticipated scale of public backlash following the retail grocery market study
has revealed several regulatory design and procedural
issues that undermine the
effectiveness of the market study process. The process in its current state
deviates significantly from
the Commission’s traditional functions by
aiming to promote competition instead of focusing on prosecuting
anti-competitive
conduct. By requiring the Commission to make policy decisions
that balance both competitive and non-competitive objectives, the market
study
process leaves the institution vulnerable to regulatory capture through
extensive engagement with the regulated industry. The
process is therefore being
exercised within a context of contentious democratic legitimacy, with the
Commission facing challenges
regarding the appropriateness of its role in
policymaking.
Applying the theory of interest-group pluralism reveals that
the market study process provides greater access and voice to industry
actors
over consumer groups. This finding is supported both empirically and
theoretically. Empirically, Consumer NZ was the only
consumer representative
group that engaged with the study. Theoretically, according to the neopluralist
school, not all interest
groups have equal access to the political marketplace
because organised business interests typically occupy advantageous positions
when compared to consumer groups. Consumer groups face challenges in defending
their interests effectively due to the logic of collective
action, rational
apathy, and free-rider problems. As a result, the consumer perspective was
likely underrepresented in the grocery
market study, notwithstanding the lack of
empirical evidence on this issue.
The final market study report’s
recommendations closely aligned with the interests and submissions of the
supermarket and supplier
groups. Conversely, the recommendation to directly
stimulate a third supermarket, supported by the consumer and charity group
submissions
but opposed by the supermarkets and suppliers, was omitted from the
final report. These omissions and close alignments do not by
themselves prove
the extent to which the Commission considered the consumer perspective.
Nevertheless, according to pluralist theory,
outcomes like these are
anticipated, as organised business interests tend to exert more influence in the
political process than consumer
groups.
This combination of factors
underscores the need for stronger accountability mechanisms in future market
studies. This article has
identified several accountability deficits in the
current market study process. First, due to its arm’s-length nature from
the Minister, the market study is susceptible to the “problem of many
hands”, creating ambiguity regarding the responsibility
of the Minister
and Commission for the study’s outcome. Secondly, while the market study
process relies on downwards accountability
mechanisms towards consumers and
industry groups, these mechanisms are often voluntarily adopted by the
Commission and not regulated
by statute. It is problematic when these mechanisms
grant greater access and voice to industry groups.
My suggestions are not
intended to be taken as radical solutions, but rather to serve as foundations
for further discussion and investigation.
From the learning perspective, a
requirement to reflect on the objectives of the study would allow the Commission
to learn from mistakes
made during the process and to improve its future
performance. From the democratic perspective, the introduction of independent
consumer
bodies would remedy the biggest issue observed in the market study
process, namely the potential for industry groups to have greater
access to the
process than consumers. As emphasised throughout this article, the
Commission’s sole statutory purpose is to
“promote competition in
markets for the long-term benefit of
consumers”.[246] The
Commission can only achieve this aspirational purpose if consumers are empowered
to defend their interests within the market
study process.
[*] LLB(Hons), BA Wgtn. A most grateful thank you to my supervisor, Eddie Clark, for his sincere feedback, encouragement and wisdom.
[1] Will Mace and Dita De Boni “Grocery challengers say ComCom report ‘weak’” The National Business Review (online ed, Auckland, 8 March 2022).
[2] Luke Malpass “Commerce Commission’s supermarkets softly-softly makes life harder for Government” (8 March 2022) Stuff <www.stuff.co.nz>.
[3] Hamish Rutherford “Final supermarket report a big backdown on profitability and response” The New Zealand Herald (online ed, Auckland, 8 March 2022).
[4] Martyn Bradbury “Commerce Commission guttlessly capitulates to Supermarket Duopoly – Labour won’t do anything” (8 March 2022) The Daily Blog <www.thedailyblog.co.nz>.
[5] Bernard Hickey “New Zealand’s supermarket duopoly lives to profit another day” (9 March 2022) The Spinoff <www.thespinoff.co.nz>.
[6] Bryce Edwards “Political Roundup – Supermarkets win in the end” (9 March 2022) Democracy Project <www.democracyproject.nz>.
[7] Commerce Commission Market Study into the Retail Grocery Sector – Statement of Process (19 November 2020) at 1.
[8] Commerce Commission Market study into the retail grocery sector: Draft report (29 July 2021) at [9.10].
[9] At [3.35] and [3.97].
[10] At [9.98]–[9.106].
[11] Kate MacNamara “Forced sale of supermarket assets still on the table as Govt tackles cost of living” The New Zealand Herald (online ed, Auckland, 28 January 2023).
[12] Commerce Commission Market study into the retail grocery sector: Final report (8 March 2022) at [9.257].
[13] Donal Curtin “Submission to the Transport and Infrastructure Select Committee on the Commerce Amendment Bill 2018” at [28].
[14] Commerce Act 1986, s 48.
[15] See William E Kovacic “Market structure and market studies” in Jay P Choi, Wonhyuk Lim and Sang-Hyop Lee (eds) Competition Law and Economic Developments, Policies and Enforcement Trends in the US and Korea (Edward Elgar Publishing, Cheltenham, 2020) 30 at 31.
[16] For example, Japan’s competition agency has had the function since the 1940s and the United Kingdom’s agency since 1973: see Tamar Indig and Michal S Gal “New powers – new vulnerabilities? A critical analysis of market inquiries performed by competition authorities” in Josef Drexl and Fabiana Di Porto (eds) Competition Law as Regulation (Edward Elgar Publishing, Cheltenham, 2015) 89 at 89–90.
[17] Commerce Act, s 48.
[18] Commerce Amendment Bill 2018 (45–2) (select committee report) at 1; and Commerce Act, s 1A.
[19] For example, the 2011 milk price inquiry and the 2010 study into the commercial building industry: see Donal Curtin “Is the competition toolkit missing its torch? The case for market studies” (paper presented to New Zealand Association of Economists Annual Conference, Wellington, July 2015) at 12–15.
[20] Commerce Commission v Telecom Corp of New Zealand Ltd [1994] NZCA 212; [1994] 2 NZLR 421 (CA) at 429.
[21] See Kovacic, above n 15, at 32.
[22] Commerce Act, ss 50(1) and 51(1).
[23] Commerce Commission Market Studies Guidelines (19 November 2020) at [32].
[24] At [32].
[25] Commerce Act, ss 50(2) and 51(2).
[26] Section 51A(1).
[27] Section 51A(2)–(3).
[28] Section 51C(1).
[29] Section 51C(2).
[30] Organisation for Economic Co-operation and Development Using Market Studies to Tackle Emerging Competition Issues (2020) at 21.
[31] At 21; and Organisation for Economic Co-operation and Development Policy Roundtables: Market Studies (2008) at 9.
[32] At 21.
[33] Commerce Commission Market Studies Guidelines, above n 23, at [62]; Commerce Commission Competition and Consumer Investigation Guidelines (July 2018) at [102]; and Commerce Act, s 98.
[34] Section 98(1).
[35] Section 98(1).
[36] Sections 51B and 51D.
[37] Indig and Gal, above n 16, at 96.
[38] Kovacic, above n 15, at 33.
[39] Commerce Act, s 51B(3).
[40] Section 51B(2).
[41] Indig and Gal, above n 16, at 101.
[42] International Competition Network “Market Studies Project Report” (paper presented to the 8th Annual Conference of the International Competition Network, Zurich, June 2009) at 74.
[43] Commerce Commission “About us” (June 2022) <www.comcom.govt.nz>.
[44] Kovacic, above n 15, at 38.
[45] Organisation for Economic Co-operation and Development, above n 30, at 17.
[46] At 15.
[47] Amelia Fletcher “Market Investigations for Digital Platforms: Panacea or Complement?” (2021) 12 JECL & Pract 44 at 45.
[48] Price leadership behaviour occurs in concentrated markets with transparent prices, such as the retail petrol market, where if one firm changes its prices, the other firms are incentivised to follow. This means the firms stop effectively competing on price, harming consumer welfare. However, there is no communication between the firms in such circumstances, meaning the Commerce Act provisions on arrangements cannot be triggered.
[49] See Campbell Doer “The Problem of Collusion: How Best to Resolve it?” [2000] AukULawRw 6; (2000) 9 Auckland U L Rev 104 at 104 and 112.
[50] See Indig and Gal, above n 16, at 102.
[51] Fletcher, above n 47, at 45–46.
[52] Ian Harper and others Competition Policy Review: Final Report (Australian Treasury, March 2015) at 447–448.
[53] See Matt Sumpter “Competition Law” [2021] NZ L Rev 457 at 469; and NZME Ltd v Commerce Commission [2018] NZCA 389, [2018] 3 NZLR 715 at [81].
[54] Indig and Gal, above n 16, at 92.
[55] At 92.
[56] Kovacic, above n 15, at 30.
[57] Mariateresa Maggiolino “The regulatory breakthrough of competition law: definitions and worries” in Josef Drexl and Fabiana Di Porto (eds) Competition Law as Regulation (Edward Elgar Publishing, Cheltenham, 2015) 3 at 16–17.
[58] Daniel A Crane “Antitrust’s Unconventional Politics” (2018) 104 Va L Rev 118 at 118.
[59] See Indig and Gal, above n 16, at 103–105; Kovacic, above n 15, at 33; and Francesco Naismith and Baethan Mullen Market Studies: Making All the Difference? (Competition Policy International, March 2022) at 6.
[60] Kovacic, above n 15, at 33.
[61] At 33.
[63] Indig and Gal, above n 16, at 104–105.
[64] Martin Lodge “Accountability and Transparency in Regulation: Critiques, Doctrines and Instruments” in Jacint Jordana and David Levi-Faur (eds) The Politics of Regulation: Institutions and Regulatory Reforms for the Age of Governance (Edward Elgar Publishing, Cheltenham, 2004) 124 at 125.
[65] Rodney Maddock, Joe Dimasi and Stephen P King “Rationalising rustic regulators: How should Australia’s national economic regulators be reorganised?” (paper prepared for the Monash Business Policy Forum, 11 July 2014) at 13.
[66] Lodge, above n 64, at 125.
[67] At 125.
[68] Indig and Gal, above n 16, at 100.
[69] Giles Dexter “National MP apologises for saying Commerce Commission ‘need a bullet’” (1 June 2023) RNZ <www.rnz.co.nz>.
[70] Mark Berry “Institutional Design Issues and Policy Challenges: Reflections from Former Chair of the Commerce Commission, Dr Mark Berry” (2020) 51 VUWLR 231 at 232.
[72] Roger Partridge Reassessing the Regulators: The good, the bad and the Commerce Commission (The New Zealand Initiative, May 2022) at 7–8 and 40.
[73] At 24.
[74] At 24.
[75] At 24.
[76] See Tom Pullar-Strecker “Commerce Commission reputation ‘slides’ in business poll” (24 May 2022) Stuff <www.stuff.co.nz>; Roger Partridge “Time is up for Commerce Commission” The New Zealand Herald (online ed, Auckland, 24 May 2022); and Pattrick Smellie “NZ Initiative claims ‘alarming’ decline at ComCom” (24 May 2022) BusinessDesk <www.businessdesk.co.nz>.
[78] Commerce Act, s 1A.
[79] Giandomenico Majone “The regulatory state and its legitimacy problems” (1999) 22 W Eur Polit 1 at 22–23.
[80] Julia Black “Constructing and contesting legitimacy and accountability in polycentric regulatory regimes” (2008) 2 Regul Gov 137 at 144.
[81] At 144.
[82] At 144.
[83] Mark C Suchman “Managing Legitimacy: Strategic and Institutional Approaches” (1995) 20 AMR 571 at 577.
[84] Majone, above n 79, at 21.
[85] Tom R Tyler Why People Obey the Law (Princeton University Press, Princeton (NJ), 2006) at 57.
[86] At 57.
[87] Mark Bovens “Public Accountability” in Ewan Ferlie, Laurence E Lynn and Christopher Pollitt (eds) The Oxford Handbook of Public Management (Oxford University Press, Oxford, 2007) 182 at 182.
[88] Mark Bovens “Analysing and Assessing Accountability: A Conceptual Framework” (2007) 13 ELJ 447 at 464.
[89] Bovens, above n 87, at 198.
[90] Fritz Scharpf Governing in Europe: Effective and Democratic? (Oxford University Press, Oxford, 1999) at 7–8; and Fabrizio Gilardi “Evaluating Independent Regulators” (paper presented to the OECD Working Party on Regulatory Management and Reform, London, 10–11 January 2005) at 108.
[91] Scharpf, above n 90, at 7–8; and Gül Sosay and E Ünal Zenginobuz “Independence and Accountability of Regulatory Agencies in Turkey” (paper presented to the ECPR Conference on Regulatory Governance, University of Bath, Bath, United Kingdom, 7–8 September 2006) at 15–16.
[92] B Guy Peters “Accountability in Public Administration” in Mark Bovens, Robert E Goodin and Thomas Schillemans (eds) The Oxford Handbook of Public Accountability (Oxford University Press, Oxford, 2014) 211 at 215.
[93] George J Stigler “The Theory of Economic Regulation” (1971) 2 Bell J Econ & Manage Sci 3 at 5.
[94] Daniel Carpenter and David A Moss Preventing Regulatory Capture Special Interest Influence and How to Limit It (Cambridge University Press, Cambridge, 2014) at 13.
[95] Ernesto Dal Bó “Regulatory Capture: A Review” (2006) 22 OxREP 203 at 203.
[96] Indig and Gal, above n 16, at 108.
[97] Commerce Commission Market Studies Guidelines, above n 23, at [61].
[98] At 13.
[99] Cass R Sunstein “Interest Groups in American Public Law” (1985) 38 Stan L Rev 29 at 63.
[100] Commerce Commission Competition and Consumer Investigation Guidelines, above n 33, at [108].
[101] Deserai A Crow, Elizabeth A Albright and Elizabeth Koebele “Public Information and Regulatory Processes: What the Public Knows and Regulators Decide” (2016) 33 RPR 90 at 103.
[102] At 103.
[103] Joseph Stiglitz “Regulation and Failure” in David Moss and John Cisternino (eds) New Perspectives on Regulation (The Tobin Project, Cambridge (Mass), 2009) 11 at 18.
[104] See Commerce Commission Market Studies Guidelines, above n 23, at 13–14; and Commerce Commission Market study into the retail grocery sector: Final report, above n 12, at 20–22.
[105] Carpenter and Moss, above n 94, at 18.
[106] Stiglitz, above n 103, at 18.
[107] At 18.
[108] Sunstein, above n 99, at 32.
[109] Andrew McFarland “Interest Group Theory” in L Sandy Maisel, Jeffrey M Berry and George C Edwards (eds) The Oxford Handbook of American Political Parties and Interest Groups (Oxford University Press, Oxford, 2010) 37 at 39–40.
[110] Sunstein, above n 99, at 32.
[111] McFarland, above n 109, at 40.
[112] Sunstein, above n 99, at 32.
[113] McFarland, above n 109, at 37.
[114] At 37.
[115] John Hart Ely Democracy and distrust: A theory of judicial review (Harvard University Press, Cambridge (Mass), 1980) at 78 and 135.
[116] At 78.
[117] At 135.
[118] Sunstein, above n 99, at 33.
[119] At 33.
[120] At 33.
[121] Martin J Smith “Pluralism, Reformed Pluralism and Neopluralism: the Role of Pressure Groups in Policy-Making” (1990) 38 Political Stud 302 at 315.
[122] McFarland, above n 109, at 42.
[123] Smith, above n 121, at 304.
[124] McFarland, above n 109, at 42.
[125] Theodore J Lowi The end of liberalism: Ideology, Policy, and the Crisis of Public Authority (Norton, New York, 1969) at 86–87; and Smith, above n 121, at 316.
[126] Sunstein, above n 99, at 74.
[127] At 77–78.
[128] Pablo T Spiller “Politicians, Interest Groups, and Regulators: A Multiple-Principals Agency Theory of Regulation, or ‘Let Them Be Bribed’” (1990) 33 JLE 65 at 65.
[129] Charles D Delorme Jr, W Scott Frame and David R Kamerschen “Empirical Evidence on a Special-Interest-Group Perspective to Antitrust” (1997) 92 Public Choice 317 at 317.
[130] Bruce L Benson, M L Greenhut and Randall G Holcombe “Interest Groups and the Antitrust Paradox” (1987) 6 Cato Journal 801 at 802.
[131] At 802.
[132] At 802–803.
[133] Crow, Albright and Koebele, above n 101, at 90.
[134] Spiller, above n 128, at 66.
[135] Crow, Albright and Koebele, above n 101, at 90.
[136] Delorme Jr, Frame and Kamerschen, above n 129, at 317.
[137] Robert H Lande “Wealth Transfers as the Original and Primary Concern of Antitrust: The Efficiency Interpretation Challenged” (1982) 34 Hastings LJ 64 at 74.
[138] Delorme Jr, Frame and Kamerschen, above n 129, at 317
[139] Benson, Greenhut and Holcombe, above n 130, at 808.
[140] At 808.
[141] At 807.
[142] At 807.
[143] At 808.
[144] See Foodstuffs North Island Foodstuffs North Island’s Submission on Grocery Market Study Draft Report (15 September 2021) at 8–33; and Woolworths New Zealand Woolworths New Zealand Limited’s submission on the New Zealand Commerce Commission’s draft report regarding the market study into the retail grocery sector (10 September 2021) at 57–108.
[145] See Foodstuffs North Island, above n 144, at 8–33; and Woolworths New Zealand, above n 144, at 57–108.
[146] See Foodstuffs North Island, above n 144, at [421]; and Woolworths New Zealand, above n 144, at [4.1].
[147] Maurice E Stucke “Looking at the Monopsony in the Mirror” (2013) 62 Emory LJ 1509 at 1510.
[148] New Zealand Food and Grocery Council Market study into the retail grocery sector: Draft report (26 August 2021) at 33–38.
[149] See New Zealand Food and Grocery Council, above n 148, at 33-38.
[150] See Nestlé New Zealand Limited Submission by Nestlé New Zealand Limited (“Nestlé”) in respect of the Draft Report of the New Zealand Commerce Commission (“NZCC”) on the Market study into the retail grocery sector dated 29 July 2021 (“Draft Report”) (26 August 2021); Vegetables New Zealand and Horticulture New Zealand Draft Report: Market Study Into the Retail Grocery Sector (26 August 2021); Federated Farmers of New Zealand Draft Report for Market Study into the Retail Grocery Sector (26 August 2021); Waterloo Farm Feedback On Commerce Commission’s Draft Report On Supermarkets Waterloo Farm Vegetable Grower (26 August 2021); Rural Women New Zealand Market Study into the Grocery Sector (26 August 2021); and Pernod Ricard Winemakers Pernod Ricard Winemakers NZ Limited’s Response To The Market Study Into The Grocery Sector (25 August 2021).
[151] See Nestlé New Zealand Limited, above n 150; Vegetables New Zealand and Horticulture New Zealand, above n 150; Federated Farmers of New Zealand, above n 150; Waterloo Farm, above n 150; Rural Women New Zealand, above n 150; and Pernod Ricard Winemakers, above n 150.
[152] Two supplier representative groups supported the third supermarket entrant recommendations: New Zealand Food and Grocery Council Market study into the retail grocery sector: Draft report (26 August 2021); and NZPork NZPork feedback on Market Study into the grocery sector Draft report (26 August 2021).
[153] Consumer NZ Submission on “Market study into the retail grocery sector: Draft report” (26 August 2021) at [2.1].
[154] The Salvation Army Market Study into the grocery sector – draft report: Consultation comments to the Commerce Commission (26 August 2021) at [18].
[155] At [25]; Consumer NZ, above n 153, at [3.3]; and Christians Against Poverty Market Study into the Grocery Sector (26 August 2021) at 5. See also FinCap Letter of support for Consumer NZ submission responding to the Market study into the retail grocery sector Draft report (25 August 2021) which supported Consumer NZ’s recommendations, including support for a new market entrant.
[156] Commerce Commission Market study into the retail grocery sector: Final report, above n 12, at [9.256].
[157] See Foodstuffs North Island, above n 144, at 89; and Woolworths New Zealand, above n 144, at [6.2].
[158] See Nestlé New Zealand Limited, above n 150; Vegetables New Zealand and Horticulture New Zealand, above n 150; Federated Farmers of New Zealand, above n 150; Waterloo Farm, above n 150; Rural Women New Zealand, above n 150; and Pernod Ricard Winemakers, above n 150.
[159] See Mace and De Boni, above n 1; Malpass, above n 2; Rutherford, above n 3; Bradbury, above n 4; Hickey, above n 5; and Edwards, above n 6.
[161] Gül Sosay “Delegation and Accountability: Independent Regulatory Agencies in Turkey” (2009) 10 Turkish Stud 341 at 347.
[162] Lowi, above n 125, at 86–87; and Smith, above n 121, at 316.
[163] Mancur Olson The Logic of Collective Action: Public Goods and the Theory of Groups (Harvard University Press, Cambridge (Mass), 1965) at 166.
[164] See McFarland, above n 109, at 41; and Olson, above n 163, at 167.
[165] McFarland, above n 109, at 40.
[166] At 40–41.
[167] At 41.
[168] Roger Van den Bergh “Private Enforcement of European Competition Law and the Persisting Collective Action Problem” (2013) 20 MJ 12 at 14.
[169] At 14.
[170] McFarland, above n 109, at 40.
[171] Olson, above n 163, at 14–15.
[172] Van den Bergh, above n 168, at 24.
[173] Smith, above n 121, at 305.
[174] Crow, Albright and Koebele, above n 101, at 93.
[175] The government rejected the voluntary wholesale access recommendation, but strengthened it by making wholesale access mandatory. They also rejected the three-year review recommendation, but went further by establishing an annual review of competition in the grocery sector.
[176] Smith, above n 121, at 305.
[177] At 305.
[178] Bovens, above n 87, at 184.
[179] Mark Bovens, Thomas Schillemans and Robert Goodin The Oxford Handbook of Public Accountability (Oxford University Press, Oxford, 2014) at 6.
[180] Bovens, above n 88, at 450 (emphasis removed).
[181] Bovens, Schillemans, Goodin, above n 179, at 13–14.
[182] Bovens, above n 87, at 184.
[183] Colin Scott “Accountability in the Regulatory State” (2000) 27 J L & Soc 38 at 40.
[184] Bovens, above n 87, at 184.
[185] At 197–198.
[186] At 198.
[187] At 198.
[188] Select Committee on the Constitution The Regulatory State: Ensuring its Accountability (HL 61-I, 6 May 2004) at 19–21.
[190] Scott, above n 183, at 42.
[191] At 42.
[192] Sosay, above n 161, at 345.
[193] At 344.
[194] Scott, above n 183, at 42.
[195] Sosay, above n 161, at 345.
[196] Bovens, above n 88, at 458.
[197] Sosay, above n 161, at 343.
[198] Bovens, above n 87, at 189.
[199] Commerce Act, s 51E; and Indig and Gal, above n 16, at 96.
[200] Bovens, above n 88, at 459–461.
[201] Stéphane Jacobzone “Independent Regulatory Authorities in OECD countries: an overview” (paper presented to the OECD Working Party on Regulatory Management and Reform, London, 10–11 January 2005) at 75.
[202] Joseph E Stiglitz “Democratizing the International Monetary Fund and the World Bank: Governance and Accountability” (2003) 16 Governance 111 at 111.
[203] See ASB “Submission to the Transport and Infrastructure Committee on the Commerce Amendment Bill 2018” at 7.
[204] Scharpf, above n 90, at 7–8; and Sosay and Zenginobuz, above n 91, at 15–16.
[205] Scharpf, above n 90, at 7–8; and Gilardi, above n 90, at 108.
[206] Sosay, above n 161, at 345.
[207] Bovens, above n 88, at 460.
[208] Select Committee on the Constitution, above n 188, at [52].
[209] Commerce Act, s 51E.
[210] Lodge, above n 64, at 132.
[211] At 127.
[212] Sosay, above n 161, at 347.
[213] Commerce Act, s 51C.
[214] Commerce Commission Market Studies Guidelines, above n 23, at 12–15.
[215] Bovens, above n 87, at 193.
[216] Bovens, above n 88, at 463.
[217] At 463.
[218] At 463.
[219] At 466.
[220] At 463.
[221] At 463.
[222] Jacobzone, above n 201, at 36.
[223] Gilardi, above n 90, at 108.
[224] Sosay and Zenginobuz, above n 91, at 12–13.
[225] International Competition Network, above n 42, at 81.
[226] At 82.
[227] See Indig and Gal, above n 16, at 105.
[228] See ASB, above n 203, at 7.
[229] Commerce Act, s 1A.
[230] William E Kovacic and Marc Winerman “The Federal Trade Commission as an Independent Agency: Autonomy, Legitimacy, and Effectiveness” (2015) 100 Iowa L Rev 2085 at 2111.
[231] Ludvig Beckman “Deciding the demos: three conceptions of democratic legitimacy” (2019) 22 CRISPP 412 at 415.
[232] Peters, above n 92, at 215.
[234] Michael Adler “Understanding and Analyzing Administrative Justice” in Michael Adler (ed) Administrative Justice in Context (Bloomsbury Publishing, Portland, 2010) 129 at 129.
[235] At 132.
[236] At 129.
[237] At 130.
[238] At 129.
[239] At 147.
[240] David Stubbs Regulatory Models for Consumer Bodies: A Report for the Consumer Council for Northern Ireland (Consumer Council for Northern Ireland, December 2013) at 6.
[241] These bodies are now defunct and have been merged into Citizens Advice: see Select Committee on the Constitution, above n 188, at [58].
[242] At [58].
[243] At [58].
[244] At [59].
[245] At [59].
[246] Commerce Act, s 1A.
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