The Commerce Commission has reached a settlement with Aoraki Mount Cook Alpine Village Ltd, which owns the Hermitage Hotel at Mount Cook.

Under the settlement, the company admitted to breaching the Commerce Act by tying the purchase of hotel accommodation with dinners through a compulsory "Dinner, Bed and Breakfast" rate. The deal meant anyone who stayed at the Hermitage hotel also had to have dinner at one of the Hermitage's restaurants.

As the only provider of hotel accommodation in the Mount Cook Village, the Hermitage has a substantial degree of market power, and the Commission considered that the deal limited competition from the only other eatery in the Village, The Old Mountaineers', and any other potential provider. The deal also restricted consumer choice.

The Commission's investigation found that the compulsory tie was likely to breach of section 36 of the Commerce Act, which prohibits the misuse of market power, and section 27, which prohibits agreements that substantially lessen competition.

The Hermitage ended the compulsory tie last year when the Commission raised concerns about the conduct, and under the settlement the company has agreed not to reinstate such a tie.

Commerce Commission General Manager Geoff Thorn said that deals of this kind, where there is a tie between one product or service and another, were unlikely to raise concerns in competitive markets, but concerns could arise in markets where competition was limited.

"Because the Hermitage is the only hotel in the Mount Cook Village, it has market power in the hotel accommodation market," Mr Thorn said.

"By introducing the tie, the company used its power in the hotel accommodation market to deter competition in the dinner market at Mount Cook."

"The Commerce Act prohibits a company from using its power in one market to prevent competition in another market."

Mr Thorn said a settlement was the appropriate way to resolve the issue. "The Hermitage ended the tie which has resulted in more choice for consumers, and had enabled all businesses in the market to compete on quality and price."

Background

In July 2002, the Commission began an investigation following allegations of anti-competitive behaviour by the Hermitage. In early 2003, the focus of the investigation turned to the decision by the Hermitage to tie the purchase of its hotel accommodation with that of dinners through an all-inclusive Dinner Bed & Breakfast rate. The concern was that the tie may have hindered or prevented The Old Mountaineers, the only other provider of dinners at the Mount Cook Village, and other potential providers, from competing with the Hermitage's restaurant.

The Hermitage introduced the compulsory tie in October 2003, and applied it until April 2006, when the Hermitage introduced a Bed and Breakfast rate to operate alongside the Dinner Bed and Breakfast rate. This effectively ended the compulsory tie.

The Commission concluded that the tie amounted to a breach of section 36 of the Commerce Act 1986 in that the conduct amounted to a taking advantage of the Hermitage's substantial market power in the hotel accommodation market at the Village for the purpose of preventing or deterring the only other existing provider, and potential providers, from engaging in competitive conduct in the dinner market at the Village.

Section 36 of the Commerce Act prohibits a person with a substantial degree of market power in a market from taking advantage of their market power to prevent competition in that or in any other market.

The Commission also concluded that the tie amounted to a breach of section 27 of the Commerce Act in that the arrangements entered into between the Hermitage and the purchasers of accommodation, which gave effect to the tie, had the purpose and likely effect of substantially lessening competition in the dinner market at the Village.

Section 27 prohibits any person from entering into, or giving effect to, a provision of a contract, arrangement or understanding that has the purpose, or effect, or likely effect of, substantially lessening competition in a market.