Where tying harms competition

Case study

This case study looks at a Commerce Commission investigation into tying under section 36 of the Commerce Act. It should be read alongside our fact sheet Taking Advantage of Market Power.

In 2007, Aoraki/Mount Cook Alpine Village Limited, trading as The Hermitage, provided hotel, motel and chalet-style accommodation for visitors to the village at Aoraki/Mount Cook, and also supplied meals and drinks services at several restaurants in the village.

The Hermitage decided to introduce an all-inclusive "Dinner, Bed and Breakfast" rate for anyone staying at the hotel. In effect, this deal meant everyone who stayed at the Hermitage hotel had to have dinner at one of the Hermitage's two hotel restaurants.  

The only other restaurant offering dinner at the village was the Old Mountaineers' Café Bar and Restaurant. The café complained to the Commerce Commission that the Hermitage's all-inclusive dinner, bed and breakfast rate prevented the café from effectively competing to offer evening meals.    

What was the relevant market or markets?

We defined the relevant markets as:

  • the supply of hotel accommodation services at the village (the hotel accommodation market)

and

  • the supply of evening meals at the village (the dinner market).

Did the Hermitage have a substantial degree of market power in the hotel accommodation market?

We considered that the Hermitage had a substantial degree of power in the hotel accommodation market because:

  • the Hermitage was the only supplier of hotel accommodation services at the village, and the nearest accommodation providers of a similar quality were located some distance away
  • entry by other accommodation providers into the market was unlikely given the regulatory requirements and the terms of the Hermitage's lease
  • when presented with the Hermitage's all-inclusive dinner, bed and breakfast rate, tour operators and other customers wanting accommodation, for the most part, had to accept the deal being offered, as there was no alternative hotel accommodation in the village.

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

Introducing the tie between the hotel accommodation market and the dinner market was only feasible because of the Hermitage's market power in the hotel accommodation market. Without that market power, the tie would not have prevented the café from competing in the dinner market. The Hermitage did not provide a plausible business reason for the tie.

What did the Commission conclude?

We concluded that the Hermitage's all-inclusive dinner, bed and breakfast rate had tied the dinner market to the hotel accommodation market. In introducing this tie, the Hermitage had taken advantage of its market power for an anti-competitive purpose, in breach of section 36 of the Commerce Act.

The deal limited competition from the only other dinner restaurant at the village, the Old Mountaineers' Café Bar and Restaurant, and other potential entrants to the dinner market at the village, resulting in little choice for consumers.

We reached a settlement with the Hermitage, in which it:

  • admitted breaching section 36 of   the Commerce Act
  • agreed to offer customers a bed and breakfast rate

agreed not to reinstate an all-inclusive dinner, bed and breakfast rate which would tie the purchase of its hotel accommodation with the purchase of dinner.

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