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High Court finds Carter Holt breached Commerce Act

High Court finds Carter Holt breached Commerce Act by below cost pricing against New Wool Products Ltd insulation

Media Release 2000/42

The High Court at Auckland has found that the manufacturer of "Pink Batts" fibreglass insulation, Carter Holt Harvey Building Products Group Limited (Carter Holt), contravened the Commerce Act when it used its market dominance for the purpose of preventing or deterring Nelson-based company, New Wool Products Limited from competing with it.

Commerce Commission Chairman John Belgrave said that the Commission is happy with the result and is studying the judgment to consider its application to other industries where there is a dominant business.

Mr Belgrave said that the Commission will provide factual information about the case but cannot yet comment on it—"It is a long and complex judgment, which we are still studying, and the case is sub judice as it is still before the Court." The Court will hold a penalty hearing at a date yet to be set.

The Commission claimed that New Wool Products wholly woollen insulation product, "Wool Bloc", significantly reduced sales of Pink Batts in Nelson and other areas.

The Commission alleged that Carter Holt responded by launching a wool and polyester combination insulation product which it called "Wool Line". However, the price of Wool Line was about double that of Wool Bloc and sales of Wool Line, particularly in Nelson and Marlborough, were low.

The Commission claimed that as a result of New Wool Products’ continued success, Carter Holt supplied Wool Line to outlets, mainly in the Nelson/Marlborough region, at below cost by the offer of two bales for the price of one.

Justice Williams stated in his judgment that:

"… in instituting and maintaining the "2 for 1" INZCO [which was the Carter Holt division that produced Pink Batts] used its dominant position in the South Island insulation market for the purpose—ie the object or aim—of preventing or deterring New Wool Products from engaging in competitive conduct in that market or eliminating it from that market. Its actions were accordingly in breach of the Commerce Act 1986 s36(1)(b)(c)."

The lay member of the Court, economist Professor Ralph Lattimore, stated in his judgment that during the "2 for 1" period Carter Holt priced the two types of Wool Line at 30 percent and 40 percent below cost.

Professor Lattimore stated:

"INZCO had produced a wool-type product, which it was selling in the Nelson region to directly compete with NWP’s Wool Bloc at a very significant margin below INZCO’s variable costs of producing the product. This is the action of a dominant supplier that would not be carried out by a non-dominant supplier in these circumstances. As a dominant supplier in the market, INZCO could easily afford the cost of the ‘2 for 1’ arrangement. The subsidy incurred in Wool Line sales in Nelson and elsewhere added to the cost of other products produced by INZCO. The costs were only a small fraction of its overall promotions budget, for example."

Section 36 prohibits a company that is dominant in a market using its dominance to prevent or deter competition in any market, or eliminate a competitor from any market.

Media contact: Chair John Belgrave

Phone work (04) 498 0964, cellphone 021 650 045

Communications Officer Vincent Cholewa

Phone work (04) 498 0920

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