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Friday, 7 March 2014

Competition works

Source: Commerce Commission
A competitive market drives down prices and delivers better services to the public. The Commerce Commission has produced a report on the pricing trends for mobile services in New Zealand. The results are encouraging.

In the prepay phone market, where most Kiwis buy their services, competition has heated up substantially since 2degrees broke the market duopoly held by Vodafone and Telecom when it entered the market in 2009. In other segments of the market, mobile phone services are still more expensive than the rest of the Organisation of Economic Co-operation and Development (OECD) - interestingly, the part of the market where there isn't as much competition. The report notes:
New Zealand’s benchmarking results in the low to medium usage and prepay mobile market segments improved since 2011, with prices dropping significantly compared to the OECD average. However, there were no relative improvements in the price of the higher usage baskets. This may have been due to there being more intense competition in the low to medium usage and prepay market segments where the third entrant, 2degrees, largely concentrated its attention. High volume users may also have been less price sensitive.

Competition has resulted in a better deal for Kiwis. The same logic should apply to the electricity market - although the on again, off again regulation of that market has produced mixed results. The Electricity Authority's own report into retail power prices confirms this - initially following the reforms of the late 1990s, prices fell until about 2001/2002 when they started to rise again, peaking in 2009 and tailing off again. There's evidence though from Consumer NZ that prices are still dropping.

Likewise with the supermarket industry. While both Countdown/Progressive and Pak'N Save/Foodstuffs tend to have a duopoly in most cities in New Zealand, in Auckland there are other players in the market, which has clearly resulted in lower grocery prices - Auckland's grocery index is 106.09, versus Wellington on 110.75, and Christchurch on 109.70. The market's far from perfect, but as the other players gain ground in Auckland, I'd wager we're likely to see prices falling for Kiwis, just as they have in the mobile market.