The use of retroactive tiered rebates allegedly breached competition law
The Commerce Commission has initiated legal proceedings in the Auckland High Court against Winstone Wallboards, a subsidiary of Fletcher Building and the manufacturer of GIB-branded plasterboard.
The proceedings, filed under sections 27 and 36 of the Commerce Act, alleged that between 2017 and 2022, Winstone Wallboards' use of retroactive tiered rebates in agreements with building supplies merchants constituted a breach of competition laws.
In a statement, Commission Chair John Small emphasised the gravity of the alleged conduct. “While the use of rebates can deliver benefits, retroactive tiered rebates can also harm competition when they’re used by a supplier with substantial market power because they can reduce the ability of smaller suppliers or new entrants to compete. In this case, we allege Winstone used retroactive rebates to damage competition, ultimately leading to consumers paying higher prices,” Small said.
The Commerce Commission has chosen to pursue this matter in court following findings from its 2022 market study into residential building supplies. In November 2021, the government tasked the Commerce Commission with a year-long study to assess competition in New Zealand’s residential building supplies sector and identify ways to enhance it if needed. The study examined the industry structure, competition dynamics, pricing practices, and barriers to market entry, especially for new and innovative products like eco-friendly or prefabricated supplies. Through extensive engagement with stakeholders, including merchants, manufacturers, government bodies, and Māori partners, the Commission gathered a broad range of perspectives. The final report, published on December 6, 2022, concluded that competition could be improved to better facilitate the introduction of new products and the expansion of competing suppliers, and included a series of recommendations aimed at bolstering competition without compromising regulatory objectives.
The study further identified retroactive rebates as a potential barrier to competition. Such practices, when employed by firms with substantial market power, can make it difficult for smaller suppliers and new market entrants to compete effectively, impacting market dynamics and consumer pricing.
Under section 27 of the Commerce Act, it is illegal to engage in agreements with the purpose or effect of substantially lessening competition. These agreements can be formal contracts or informal arrangements that restrict market competition. Additionally, section 36, in its form during the period of 2017-2022, prohibited companies with significant market power from misusing that power for certain anti-competitive purposes. This section has been updated as of April 2023 to extend the prohibition to any conduct that substantially lessens competition.
The Commission noted that, due to the active nature of the proceedings, it could not provide further comment.
