It’s fair to say that economists like competition.

It’s also fair to say that, when politicians start talking about competition, economists ought to get a little bit nervous.

People can have very different understandings of the same word. For example, in a classic Simpsons episode, environmentalist Lisa Simpson convinced Mr Burns of the merits of recycling – and was later horrified to find that he built a machine to ‘recycle’ the ocean’s bounty into a multipurpose slurry.

Part of the problem might be how the concept of competition is introduced to undergraduates. Describing that part in detail would be boring for almost everyone. In short form for my colleagues in the universities, it would be great to emphasise that the conditions underpinning the First Welfare Theorem are sufficient, rather than necessary. Harold Demsetz’s warnings to compare real markets, warts and all, against real bureaucracies, and all their failings, remain on point. And Alchian and Allen’s emphasis on open markets, rather than competitive markets per se, is the more helpful.

At the heart of the difference – while trying to avoid the boring bits – is how we understand the term competition. Is a competitive market one where there is some ‘right’ number of companies, of the ‘right’ sizes relative to each other? Or is a competitive market one in which no special permissions are needed to set up shop and every firm always needs to be looking over its shoulder?

Sometimes, the two amount to the same thing.

Every decent-sized town has numerous barbershops, under separate ownership, of varying sizes. If it isn’t quite a textbook example of competition, on a numbers-counting basis, it’s workably close to it.

You’ll also see new barbershops spring up and other ones close. Places that have been barbershops come under new management; places that hadn’t been barbershops become new ones; other places shift from being barbershops to being other things. It’s an open market – despite a few strange regulatory requirements. You don’t need government permission to start cutting hair, or much permission to set up a shop cutting hair. You certainly don’t need to beg your competitors to allow you to open. Entry is straightforward.

But not all competitive markets, by the one definition, are open by the other. And not all open markets are ‘competitive’, if we measure things by counting companies. Openness matters more – both when thinking about customers’ experiences, and about government policy.

You could think about it this way. In which market would you rather go shopping? One in which a reasonable number of existing companies compete for your business, but where nobody new is ever allowed to set up shop? Or one where there are a small number of companies, but anyone – even you! – could start a business and compete if they thought existing offerings weren’t good value?

When markets are open, underperformance by existing competitors, no matter their number, is potential profit for new entrants – and better service for customers. It is one reason that economists talk about competition being a discovery process. When markets are open, we can discover what the ‘right’ number of firms might be – among other things.

And that gets us back to my worries when politicians start talking about enforcing more competition.

Last week, Newsroom reported on the Prime Minister’s State of the Nation speech.

““Too often we see reports of Kiwis getting a raw deal because of a lack of competition,” he said. “I’m up for action.”

… Luxon said he’d be driving his ministers to go much, much further in opening up competition – “and nothing is off the table”.”

And I started worrying remembering when Lisa Simpson had thought she’d convinced Mr Burns of the merits of recycling. Are we really quite sure what they mean by this?

Minister Willis focused on the price of a paperback at the airport as compared to in town. Is that a good sign that they are taking competition issues seriously?

If the government wants to focus on openness, it could do much good.

Successive Commerce Commission market studies identified regulatory and policy-based barriers that make it incredibly difficult, if not impossible, for new firms to compete with incumbents.

The market study into building materials noted the lack of land zoned for new big-box retail suppliers. I worry that this is one root of high building material costs compared to overseas.

It isn’t just that regulation and council risk-aversion makes it hard to use some kinds of overseas building materials. It is also that if North America’s Home Depot wanted to compete with Mitre 10 and Bunnings, it would be hard for them to find enough sites zoned for that kind of large footprint shop. Being able to deliver goods to building sites on time, packaged up in the way builders want them delivered, requires having a good retail distribution network – and good luck getting the zoning changes to allow it.

The Commission’s final report into grocery retail found a similar problem. Opening a new supermarket chain would be tied up in Overseas Investment Office approvals, zoning change hearings, and resource consenting processes that could delay any supermarket’s opening for months or years. If the government wants more retail grocery competition, making it not be effectively illegal to open a new supermarket chain might be a good start.

Similarly, the Commission warned that regulatory barriers hinder competition in banking.

The Coalition Agreement between National and ACT promised to reform market studies to focus on reducing regulatory barriers to new entrants to drive competition – an openness measure.

There is no shortage of places to shine a flashlight.

Opening a new pharmacy is tied up in weird regulations about who is allowed to own pharmacies. And if you want to dispense prescriptions, you will have a hard time getting permission to do that if there are a lot of other pharmacies already nearby. The market that might look competitive by counting retail outlets is anything but when we look at openness.

Many occupational licensing regimes look an awful lot like cartels organised to protect incumbents. Those regimes should have ongoing regular review to make sure that they are still providing a necessary public benefit and have not turned into cartels. Nobody is checking.

A Commerce Commission study into the market for medical services is obviously desperately needed. But there are issues elsewhere as well.

The Free Speech Union is worried that the Real Estate Authority is making it hard to be a real estate agent if you do not take extensive training in cultural issues that may be irrelevant for many realtors. I wonder instead why anyone should need special permission to be a real estate agent in the first place. Are we quite sure that regime is still needed?

It is a target-rich environment, if we’re thinking about openness.

A government serious about market openness and competition would have a set of obvious studies lined up for the Commerce Commission to undertake – though a Commission serious about competition could self-initiate those studies.

The Ministry for Regulation could take the results of new market studies, check whether any identified barriers to competition provide sufficient offsetting public benefits, and recommend legislative changes if not.

But the most recent study – on banking – concluded last August, and no new studies have been signalled.

Since that study, the government has not been talking about new market studies but has been talking about propping up Kiwibank. Doing so would worsen real market openness. Imagine wanting to enter the New Zealand market when the government is prepared to heavily subsidise an incumbent – and might boost the subsidies if you are too successful in competing against it.

The government could help to bring down prices and improve the products on offer for consumers if it focused on ensuring market openness. Political campaigns against existing businesses may be more tempting, but they will do less good.

To read the full article on the Newsroom website, click here.