Activist label rests lightly on Rebstock

Paula Rebstock, pictured at her Greenhithe home, says successor Mark Berry is coming back to a more capable organisation. Photo / Paul Estcourt

Paula Rebstock steps down after five years chairing the Commerce Commission at a time when having an effective and vigilant competition watchdog has never been more important.

The temptation to engage in price-fixing or other kinds of anti-competitive behaviour is particularly strong when economies are in a slump.

"There is pretty clear evidence from international studies that cartels often start in periods when there is pressure on economies, and once they start they stay in place, often for decades," she told the Business Herald.

"Most economists who have studied the Great Depression say one of the things that lengthened and deepened it in the United States was the suspension of competition law. Of course it was done in response to pleas for protection of business and particular interests that were struggling."

Likewise, Japan's situation in the early 1990s was worsened by the fact that it simply did not enforce its competition laws, she said.

Lifting consumer confidence out of the pits - essential to any recovery - will also require consumers to be confident that market rules are being enforced and markets appropriately overseen.

The commission is said to have become more activist on Rebstock's watch. In some quarters it is an accusation.

"Well, it has become more effective in doing the job it is there to do," she said. "Some people would term that activist, I guess. There is no question in my mind that the performance of the commission has improved.

"But I certainly don't think we are out of line with what would be considered international best practice.

"From time to time it will make us unpopular, sometimes very unpopular, with affected parties, but you have to stay focused on where the public interest lies and how absolutely vital competition is to underpinning economic performance, and ensuring all New Zealanders - and not just those with market power - benefit from economic activity."

American by birth and an economist by training, Paula Rebstock came to New Zealand 22 years ago with husband Ulf Schoefisch, also an economist.

She worked at the Treasury, as an economic adviser in the Prime Minister's Department in Jim Bolger's day and as general manager, policy, at the Department of Labour.

She has served on the Commerce Commission for 11 years and chaired it since 2003.

The hardest decision, she says, was the Qantas/Air New Zealand merger proposal in 2003, when she had yet to "earn her stripes" as chairwoman.

"On that occasion almost everyone in New Zealand had a view on what should happen and there was a lot of political comment as well," she said.

"The issues were incredibly complex and we had to sort through a lot of conflicting economic advice."

But what "broke" the case for the commissioners was a senior staff economist uncovering that much of the public benefit claimed for the merger arose from the fact that a lot more New Zealanders would have to holiday in New Zealand because of higher air fares.

The tourist industry would benefit, but the commissioners struggled to see fewer people being able to afford a holiday overseas as a public benefit.

Early in Rebstock's term as chairwoman the commission made the decision to be more proactive and transparent about where it would focus its attention.

"We stood back and thought about what were the major competition and consumer issues that were really impacting across the economy and causing the most public detriment. We became far more strategic in identifying those areas and signalling what we were going to concentrate on."

On the Fair Trading Act side of the commission's work the results were immediate. Previously the largest fine imposed for breaches such as misleading advertising had been $60,000.

"Suddenly we went to a 12-month period when we had 12 cases where the fines were over $500,000 each," she said.

"We took cases against airlines for misleading conduct around their pricing and against the banks over credit card fees."

About the same time the commission decided to follow some competition authorities overseas in offering leniency for members of price-fixing cartels who blew the whistle and co-operated with the authorities.

Somewhat to the commission's surprise the policy paid dividends.

And it still does. "Even in the last two months we have had three new leniency applications," she said.

"It has really put us on the front foot in the competition space."

But while the price-fixing provisions of the Commerce Act are working fine, Rebstock cannot say the same for section 36 - the provisions relating to the use of substantial market power to deter or prevent competition.

It is particularly important in a small country where there tends to be fewer players in a market. "We have made no secret of the fact we think we need to perform better in that area," she said. "We have put in place a review [chaired by Justice Thomas Gault] to look at not just the way the law is framed but how the commission has gone about choosing cases and running cases, and whether we could have done better in clarifying and enforcing the law in that area.

"If there are issues with the law itself the commission would need to go back to the Government with it."

The commission's overseas counterparts are struggling with the same issue. Australia has recently amended its competition statute in this area.

"And the Obama Administration has indicated it is not acceptable to continue with a pretty much sole focus on cartels and very little on substantial market power and that it is minded to strengthen those provisions."

The commission has recently completed a lengthy inquiry into whether there is abuse of market power by electricity generators. It has yet to release the results and Rebstock says it is not her place to do so.

But a paper on the web by Stanford University economist Professor Frank Wolak, who undertook the work, concludes that "suppliers in the New Zealand market have a substantial ability and incentive to exercise unilateral market power [and] this exercise of market power can lead to large wealth transfers from consumers to producers".

Managing this issue will fall to Rebstock's successor, Mark Berry.

Berry has a law degree from Columbia University. "So he is very much trained in the American anti-trust approach which for decades set the standard," Rebstock said.

"The commission is quite a different place from when he was there before [as deputy chairman between 1999 and 2001]. Its functions have increased markedly. All the industry-specific areas pretty much came on line after he left," she said.

"He will come back to a different - but I think much more capable - organisation."