The Commerce Commission has today released a paper outlining the preliminary issues it may explore and the proposed scope for its market study into residential building supplies.

Chair Anna Rawlings says the issues focused on will be refined as the Commission’s understanding of the industry develops and the Commission invites views on the areas of focus for the study, which are discussed in the Preliminary Issues paper.

“We welcome feedback on our Preliminary Issues paper from all interested parties, and we will also engage more directly with tangata whenua as Tiriti o Waitangi partners and with industry participants at the various supply chain levels, including manufacturers, suppliers, merchants, retailers, product specifiers, builders and other purchasers,” says Ms Rawlings. 

Under the terms of reference issued by the Minister of Commerce and Consumer Affairs, the Commission is required to consider any factors that may affect competition for the supply or acquisition of key building supplies used to build the major components of residential buildings. The major components of residential buildings are, for the purposes of this study, the foundation, flooring, roof, walls (structural and non-structural, interior and exterior) and insulation.

Matters to be considered in the study may include, but are not restricted to:

• the industry structure for key building supplies covered by this study;
• the nature of competition for these key building supplies, including any industry pricing practices or acquisition requirements that impact on competition; and
• impediments to the entry or expansion of new or innovative building supplies, such as “green” building supplies or novel prefabricated products.

In the Preliminary Issues paper, the Commission identifies a range of potential issues it may explore, including:

• the prevalence and impacts of vertically integrated businesses which operate at several levels in the supply chain, and concentration in the relevant markets;
• arrangements entered into between parties at different levels of the supply chain, such as rebates and loyalty schemes, and any conduct that suggests competitors may be accommodating one another in a way that impacts competition between them;
• the regulatory and standards systems that apply to building product quality assurance, and Building Code compliance and consenting; and the decision-making behaviours of the market participants who are involved in or influence purchasing decisions for key building supplies.

“The purpose of our market study is to look at whether competition is working effectively within the residential building supplies industry and, if not, what might be done to improve it,” says Ms Rawlings.

“If competition is working well in the industry this will benefit consumers through the prices they pay for building supplies, the range and quality of supplies available, and the level of innovation within the industry.” 

The paper also seeks feedback on the key building supplies used to build the major components of residential buildings which the Commission proposes to focus upon.

The Commission’s preliminary view is that the terms of reference are neutral as to the style of residential building structure and define the scope of study by reference to the ‘building envelope’.

At this stage, it considers:

• windows to be within the scope of the major components of residential buildings, as an integral part of interior and exterior walls; and
• plumbing and electrical supplies to be outside the scope of this study.

The Preliminary Issues paper features a series of questions from the Commission to assist submitters to respond. However, the Commission welcomes submissions on any issue relevant to the paper and the scope of study.  It also welcomes any supporting evidence that submitters may be able to provide with their submissions.

The paper can be found here and the attachment – how to feed back and Issues Paper questions – can be found here. 

Submissions can be emailed to buildingsuppliesmarketstudy@comcom.govt.nz. Submissions close at 4:00pm on 4 February 2022. 

The Commission expects to release a draft report for consultation around July 2022 and its final report by 6 December 2022.

A process paper and guidelines that describe the purpose of a market study and the Commission’s approach to market studies are available on the residential building supplies study webpage.

If you are interested in receiving future updates on this study, please subscribe to our mailing list.

Background

This study, into residential building supplies, will be the Commission’s third market study after completing a first market study, into retail fuels, in December 2019 and a second, currently ongoing, market study into the retail grocery sector.

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.

By gathering and analysing information on an industry, we can identify whether there are features preventing competition from working well, as well as considering how things might be improved for the long-term benefit of New Zealand consumers.

Outcomes of our work may range from a ‘clean bill of health’ for the sector to recommendations for changes to enhance market performance. The Commission’s recommendations are non-binding, but the Government must respond to any recommendations within a reasonable period.

Why is competition important?
When markets work well, businesses compete by providing consumers with products and services at prices and quality levels they hope will be more attractive than their rivals. In a competitive market, businesses are incentivised to innovate, and new competitors may be attracted to enter the market and expand within reasonable timeframes, putting pressure on incumbents.