@GarethMP @jamespeshaw need message discipline on @NZGreens as honest brokers

Yesterday morning, Green MP Gareth Hughes posted a British Greens’ video about how other politicians are a bunch of squabbling children but the Greens are above that. It’s only the Greens who offer a “true alternative to the establishment parties” and their “same childish Punch & Judy politics”.

Later that same day Greens co-leader James Shaw posted a video that shaded the truth about the history of dividends from Kiwibank as a way of scoring points of the National Party led government.

Shaw claimed that the government is extracting more and more dividends from Kiwibank rather than letting it keep those profits as capital on which the government owned bank can be a more aggressive competitor.

image

Source: Kiwibank pays its first dividend of $21 million to Government | Stuff.co.nz.

Shaw is vaguely correct in that it is dividends plural when referring to Kiwibank’s dividends. Kiwibank paid dividends of $21 million last year; and $750,000 the year before. Kiwibank has paid two dividends to New Zealand Post in its entire history since 2002.

It shades the truth to say that the government is extracting more and more dividends from Kiwibank when when it has only paid one dividend worth mentioning, which was last year.

image

Source: New Zealand Treasury – data released under the Official Information Act.

As for James Shaw’s claim that the entry of Kiwibank made banking in New Zealand much more competitive, Michael Reddell disposed of that by linking to a 2013 Treasury assessment of competition in retail banking.

image

image

Source: New Zealand Treasury Official Information Act Releases.

There are no excess profits in the New Zealand banking market for Kiwibank to undercut. Entry barriers are low, banking products are easy substitutes for each other between the competing banks, and the banks compete for market share by advertising  of, for example, special packages to switch banks.

Adding to the analysis of the Treasury, Posner and Easterbrook suggest that these industry behaviours together are suspicious.

  1. Fixed relative market shares among top firms over time.
  2. Declining absolute market shares of the industry leaders.
  3. Persistent price discrimination.
  4. Certain types of exchanges of price information.
  5. Regional price variations.
  6. Identical sealed bids for tenders.
  7. Price, output, and capacity changes at the time of the suspected initiation of collusion.
  8. Industry-wide resale price maintenance or non-price vertical restraints.
  9. Relatively infrequent price changes; smaller price reactions as a result of known cost changes.
  10. Demand is highly responsive to price changes at market price.
  11. Level and pattern of profits relatively favourable to smaller firms.
  12. Particular pricing and marketing strategies.

As the Treasury noted in its analysis, there are several small banks offering competitive rates that would allow them to expand if they offered value for money over the existing offerings. Returns on equity of the big banks are not discernibly higher than for the smaller ones.

To add again to the Treasury analysis, it is not easy to organize a cartel. There are markets to divide, prices to set, and production quotas to assign. The best place to be in a cartel is outside of it undercutting the higher price and selling as much as you can before the cartel inevitably collapses. Brozen and Posner suggest the following pre-conditions to collusion:

  • market concentration on the supply side;
  • no fringe of small sellers;
  • high transport costs from neighbouring markets;
  • small variations in production costs between firms;
  • readily available information on prices;
  • inelastic demand at the competitive price;
  • low pre-collusion industry profits;
  • long lags on new entry;
  • many buyers (otherwise selective discounting to big buyers will be too tempting while monitoring adherence to the agreement will be difficult);
  • no significant product differentiation;
  • large suppliers selling at the same level in the distribution chain;
  • a simple price, credit and distribution structure;
  • price competition is more important than other forms of competition;
  • demand is static or declining over time; and
  • stagnant technological innovation and product redesign.

Stable collusive arrangements are thus likely to be rare because the absence of any of the above conditions will tend to undermine the potential for successful collusion.

Successful cartel operation is even harder than its initial formation. Members of the cartel must continue to believe that they enjoy net profits from participating in the collusion.

The more profitable the collusive price fixing, the greater the incentive for outsiders to seek entry to compete. In cartel theory, these new entrants are known as interlopers.

image

The more numerous the participants in the cartel and the more lucrative the collusion, the greater the temptation for individual members to cheat and the greater the fear of each that some other member will cheat first.

Cartel members that cheat early profit the most from the cartel price before it collapses. That is why the history of cartels is a history of double-crossing. Long-term survival of the cartel has two fundamental requirements:

  1. cheating by a member on the cartel prices, outputs and market shares must be detectable; and

  2. detected cheating must be adequately punishable without breaking-up of the cartel.

If banking was a cartel, you would not see advertising on the TV every night inducing customers to switch but you do. That advertising is cheating on the banking cartel the New Zealand Greens want to break up.

There is an infallible rule in competition law enforcement. It arises mostly crisply in merger law enforcement. If competitors oppose a merger, the merger must be pro-consumer. If the merger is anti-competitive, that merger will increase prices. The competing firms can follow those prices up and profit from the weakening of competition subsequent to the merger.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Notes On Liberty

Spontaneous thoughts on a humble creed

COVID-19 Law

A collection of Australian legal resources relating to the coronavirus pandemic

Mostly Economics

This blog covers research work in Economics with focus on India.

Map Dragons

Written by map lovers for map lovers

Wrong Hands

Cartoons by John Atkinson. ©John Atkinson, Wrong Hands

New Historical Express

(Formerly Hatful of History)

FondOfBeetles

a developmental biologist in a gendered world

Overcoming Bias

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

CONVERSABLE ECONOMIST

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Barrie Saunders

Thoughts on public policy and the media

The Victorian Commons

Researching the House of Commons, 1832-1868

Coyote Blog

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Overlawyered

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

American Enterprise Institute – AEI

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The History of Parliament

Blogging on parliament, politics and people, from the History of Parliament

Catallaxy Files

Australia's leading libertarian and centre-right blog

Climate Audit

by Steve McIntyre

StephenFranks.co.nz

A New Zealand lawyer, ex-MP, farmer and enthusiast for life opines on law, politics and the universe

Books & Boots

reflections on books and art

Legal History Miscellany

Posts on the History of Law, Crime, and Justice

Sex, Drugs and Economics

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The Long Run

the EHS blog

The Undercover Historian

Beatrice Cherrier's blog

Vincent Geloso

Economics, History, Lots of Data and French Stuff

Climatism

Tracking Anthropogenic Climate Alarmism

Science Matters

Reading between the lines, and underneath the hype.

Point of Order

Politics and the economy

FREEcology

Libertarian environmentalism

Doc's Books

A window into Doc Freiberger's library

Newmark's Door

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Media Myth Alert

Calling out media myths

Uneasy Money

Commentary on monetary policy in the spirit of R. G. Hawtrey

European Royal History

Exploring the History of European Royalty

Tallbloke's Talkshop

Cutting edge science you can dice with

Marginal REVOLUTION

Small Steps Toward A Much Better World

The Risk-Monger

Let's examine hard decisions!

%d bloggers like this: