Assessing a refusal to supply

Case study

This case study looks at how the Commerce Commission assessed a complaint of a refusal to supply under section 36 of the Commerce Act. It should be read alongside our fact sheet Taking Advantage of Market Power.

An outdoor supplies company became the New Zealand agent for a brand of ski boots. It decided not to supply the boots to a retailer, despite the retailer having stocked that brand for many years. The retailer complained to the Commerce Commission, claiming the outdoor supplies company had breached section 36 of the Commerce Act by refusing to supply the ski boots.

What was the relevant market or markets?  

There was demand for other brands of ski boots, so, from a customer perspective, the market was not limited to the one brand of ski boots. However, the market did not include other kinds of boots such as gumboots or work boots.

Ski boots were being supplied wholesale to retail outlets all over New Zealand.

So, the relevant market was likely to be the market for wholesale supply of ski boots in New Zealand.

Did Outdoor Supplies have a substantial degree of power in this market?

At the time of the complaint, there were several importers and wholesalers supplying competing brands of ski boots in New Zealand. Also, we assumed that it wouldn't be difficult to import other brands of ski boots from overseas. We therefore concluded that the outdoor supplies company did not have a substantial degree of power in the market for wholesale supply of ski boots in New Zealand.

If there had only been one or two brands of ski boots being sold in New Zealand, we would have looked at whether other overseas brands could enter the market. We would also have considered whether a New Zealand shoe or boot manufacturer could start making ski boots and if so, whether it could sell such boots at a competitive price.

Had the supplier taken advantage of its substantial degree of market power for an anti-competitive purpose?

Because we considered that the outdoor supplies company was unlikely to have any substantial power in the relevant market, we did not need to go on to ask whether, by refusing to supply the retailer, it had taken advantage of its substantial degree of market power for an anti-competitive purpose, so as to prevent a rival competing effectively.

What did the Commission conclude?

We concluded that the outdoor supplies company did not have a substantial degree of power in the market for the wholesale supply of ski boots in New Zealand. Given this, it could not take advantage of having a substantial degree of market power, by, for example, refusing to supply a retailer.

In general, any person in trade is able to decide who it does business with. A supplier may decide not to supply a particular reseller and providing that that decision is made on sound commercial grounds, there is not likely to be an issue under the Commerce Act.

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