- Commerce Commission says it needs to be easier to bring new building products into the market
- But it is not recommending breaking up any existing suppliers
- It is concerned by the use of ‘rebates’ by dominant businesses and will prepare more information on what practices it wants to stop
- The prices shown on invoices for building materials should be the price paid, it says
The country’s competition watchdog says competition for the supply of key building supplies is not working as well as it could.
However, the Commerce Commission has not recommended breaking up any suppliers in the sector, focussing instead on recommendations to help new suppliers into the market.
Chairperson Anna Rawlings said its draft market study into the industry released on Thursday did not amount to an “all clear” for businesses such as Fletcher Building, whose subsidiary Winstone Wallboards dominates the supply of plasterboard.
“We discussed the vertical integration of a couple of the suppliers and merchant chains and we do identify that can give rise to difficulties at times, so it’s not an ‘all clear’.
“But we haven’t found at this stage that vertical integration is substantially affecting competition across the supply or the merchant level,” she said.
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The Commerce Commission said competition would be improved if it was easier for building products to be introduced and for competing suppliers to expand their businesses.
Rawlings said its investigations had shown “tried and tested” products had become embedded in home-building practices in New Zealand, and the building regulatory system should include competition as a “deliberate objective”.
“Despite flexibility to use new products being available in the system, it is too slow, costly and uncertain to get them accepted for general use,” she said.
Gib-branded plasterboard was one of the products commonly specified in building plans and that had made it difficult for builders to substitute it for competing products, she said.
The commission found some rebates paid by building supplies firms to merchants were adding to competition problems.
“In some circumstances, some types of rebates paid by established suppliers to merchants appear to be reinforcing difficulties faced by competing products,” Rawlings said.
Those rebates rewarded merchants for purchasing greater volumes through a single supplier and could deter merchants from stocking competing products in their stores, she said.
The commission did not recommend new laws to restrict the use of rebates, but Rawlings said in some cases they could breach the Commerce Act, and that they were more likely to do so once an already-legislated change to the act came into effect next year.
That change will mean businesses with significant market power can be prevented from engaging in conduct that is likely to have the effect of substantially lessening competition, whether or not that was in fact their intent.
She indicated the commission would provide more information to the industry about what types of rebates it would deem unacceptable before that law change took effect.
National Party construction spokesperson Andrew Bayly said the commission had done a good job working out what the problems were in the sector but said most people knew about those issues anyway.
“I am a bit surprised that they concluded that vertical integration does not appear to be a factor affecting competition over the long term, particularly when they raise the issue of quantity-based rebates and potential land covenant restrictions,” he said.
Vertical integration refers to the ability of manufacturers of building products to also control the distribution of those products.
Bayly said there didn’t seem to be much supporting data to the commission’s view that vertical integration was not a problem.
It was a “missed opportunity” that the commission hadn’t looked significantly at whether suppliers were able to extract excess profits, he said.
But he said National was not calling for the break-up of any businesses in the sector, saying working out whether that was required was the role of the commission.
Aside from recommending competition should be specified as an objective in building regulations, the commission recommended developing systems to centralise information-sharing about building supplies.
Rawlings indicated that businesses that misrepresented the true cost of building supplies in their invoices to customers to disguise the impact of discounts they had received could be breaching the Fair Trading Act.
“We would expect if customers were being told the price paid for a product, that should be the price,” she said.
Builders that overstated the actual price they had paid for materials in their invoices should take that as a warning, she confirmed.
The commission is due to finalise its report and recommendation by December 6.