CHH: pricing of item within law

By BRIAN FALLOW

WELLINGTON - Carter Holt Harvey denies it breached the Commerce Act by selling a "me-too" product below cost for six months in response to competition from a small Nelson firm making building insulation from wool.

Indeed, its price-cutting was "the very stuff of competition," the company's counsel, David Williams, QC, told the High Court in Wellington last week when opening his defence against the Commerce Commission's case.

In 1992 New Wool Products began competing against Pink Batts, produced by a Carter Holt unit, INZCO, with an insulation product called Wool Bloc made from wool recycled from such sources as carpet manufacture waste.

In late 1993 INZCO responded with a new product, Wool Line, made from a wool-polyester blend.

Initially it was almost twice as expensive as Wool Bloc and a flop, Mr Williams said.

In March 1994 INZCO began offering Wool Line on the basis of buy one, get one free, which was admittedly below cost.

Mr Williams argued this was not a breach of section 36 of the Commerce Act. Despite Pink Batts' high market share it was not dominant because there were no barriers to entry, as evidenced by the number of "new boys on the block" by 1994. Nor had INZCO used its market power for any of the proscribed anti-competitive purposes.

"Nowhere in the documents is there any statement to the effect that the [two-for-one] promotion had the purpose of eliminating New Wool Products from the market," Mr Williams said.

Mistakenly describing behaviour such as INZCO's as predatory could be costly, by chilling the very conduct that competition laws were designed to protect, he said.

Companies often sold below cost, for loss-leading or promotional purposes, or to match a competitor's price when not to do so would have more dire financial consequences. The case is proceeding.