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