Investors like monopolies, but consumers and Governments loathe them. This episode explores our love-hate relationship with market dominance. Video / Carson Bluck
The chairman of the Commerce Commission is not against big profits, nor entrepreneurs aiming to build monopolistic businesses that hold power over a given market.
“I just don’t want them to succeed,” John Small said with a laugh on Markets with Madison.
“It’s not that I don’t want them to succeed, but an enduring monopoly then ends up being something that is plundering people, or can potentially be [should not succeed].”
The state agency is increasingly getting involved in big business, undertaking year-long market studies into fuel retailers, grocery giants, building product suppliers and banks, finding unfairness among many of them.
Small said investors should prepare for such investigations to become more commonplace (depending of course on whether the current Government wanted to continue them).
“I would like to hope that it’s not such a scary prospect for firms in the future to be subject to such things.
“I think they’re helpful.”
It wasn’t about attacking big businesses, but rather keeping capitalism in check.
“It’s not in anybody’s interest to drive these firms out of business, that’s the last thing that we want.
“We want to see firms going after each other, and that drives them to do better, it drives them to innovate.”
Commerce Commission chairman Dr John Small says the regulator is not interested in attacking big businesses, but rather keeping capitalism in check. Photo / Mark Mitchell
Unlike the United States, it is not illegal to be a monopoly in New Zealand nor charge high prices. However, it is illegal to exert anti-competitiveness such as doing something to deny a new player access, or collude with competitors.
New Zealand had monopolies that were granted Government licences and subject to Commission checks such as Fonterra. Fletcher Building was considered a near monopoly with its power over plasterboard products.
Our grocery sector was a known duopoly led by two significant players and our banking sector was an oligopoly shared by five major players.
Historic monopolies have included Britain’s East India Trading Company, the US Rockefeller Standard Oil Company and the DeBeers diamond syndicate.
Today, scrutiny was on big technology corporations with an anti-trust action just launched against iPhone maker Apple and its App Store.
But investors had the opposite agenda – they typically aimed to invest in businesses with monopolistic characteristics, dubbed moats.
As an example, investor Peter Thiel believed the most valuable businesses had no competition at all and entrepreneurs should aim to, “Build the business no one is building”.
Investor Peter Thiel believes the best businesses have no competition at all. Photo / Brett Phibbs
“Every business person wants a monopoly, let’s be honest,” Small said.
“It’s that kind of thirst for an edge and a way of making a profit that actually delivers all the good things that we get ... And it’s not a bad thing at all.
“If someone can successfully defend their edge without breaking the law, good on them.”
Discussing balancing returns for company shareholders with positive consumer outcomes, Small said he wanted to keep investors in the game.
“The issue that we get concerned about, for example ... is profits that are much higher than is consistent with the risk you’re taking [as an investor].
“They can be an indicator that there’s something not quite right about the way that these firms are competing.”
But, to what degree was the Commission interfering in markets?
Today’s episode of Markets with Madison above explores our love-hate relationship with monopolistic businesses.
Get investment insights from executives and experts on Markets with Madison every Monday and Friday here on the NZ Herald, on YouTube and wherever you get your podcasts.
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Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.
Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
