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Commission opens first market study into retail fuel sector

Commission opens first market study into retail fuel sector

The Commerce Commission has today commenced a market study into factors that may affect competition for the supply of retail petrol and diesel used for land transport throughout New Zealand.

Chairman Dr Mark Berry said the retail fuel market plays a large role in the domestic economy, with prices at the pump directly affecting all New Zealanders. In the year to June 2018 total retail sales of petrol and diesel amounted to more than $8 billion.

“We are aware of recent concerns relating to retail fuel prices. Our role is to provide an objective and independent assessment of the level of competition in this market and what factors may be impacting on it,” Dr Berry said.

“We will shortly be issuing information requests to selected sector participants and seeking information from a range of other parties involved with this industry. This is a complex market and we expect we will need the full 12 months to complete the study, as the Government has allowed for. We intend to publish working papers during the first half of this study, with a draft report released by August next year and the final report in December.”

The terms of reference for this study require the Commission to focus on the retail market for petrol and diesel used for land transport. The study will not assess competition in other fuel markets, such as aviation or marine.

The Commission will next week publish a process paper on the fuel study. Prior to Christmas it plans to release a statement of preliminary issues that interested parties will be invited to submit on.

The Commission will also next week publish and invite submissions on draft guidelines that will govern its approach to all market studies, with submissions closing on 31 January 2019.

The Commission has set up a dedicated webpage for the retail fuel study that will be updated as the study progresses. The process paper and draft guidelines will be available on this page by Wednesday 12 December 2018.

Background

Legislation enabling the Commission to undertake market studies came into force in late October 2018. The Commission or the Minister may initiate a market study where they consider it is in the public interest to do so. The party that initiates the study must publish terms of reference that identify the goods or services to be studied.

What is a market study?

A market study, referred to as a “competition study” in Part 3A of the Commerce Act, is a study into the factors affecting competition for particular goods or services, to find out how well competition is working and whether it could be improved.

When markets work well, firms compete by providing consumers with competitively priced offerings and high quality products and services, or using their strengths, skills and other advantages to meet consumers’ needs more effectively than their rivals. In a competitive market, firms are incentivised to innovate and new competitors are often attracted to entering the marketplace and provide pressure on incumbents. A competitive market usually provides consumers with increased choice and consumers are able to shop around by accessing accurate information about products and services.

Market studies allow us to examine if markets are working well for consumers and how they could work better. We do this by investigating the features of the market, including regulatory and competition features and patterns of consumer and supplier behaviour.

By gathering and analysing information on a market we can identify whether there are features preventing it from working well. We can then look at the effects of features identified and consider how they can best be addressed using proportionate means.

Outcomes of our work may range from a ‘clean bill of health’ for the sector to, where we consider it appropriate, recommendations for changes to enhance market performance. Our recommendations are non-binding, however the Government must respond to any recommendations within a reasonable period.

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