PUBLIC COPY ISSN NO. 0114-2720 J4124 Draft Determination Note: This is a Draft Determination issued for the purpose of advancing the Commission’s decision on this matter. The conclusions reached are preliminary and take into account only the information provided to the Commission to date. Draft Determination pursuant to the Commerce Act 1986 (“the Act”) in the matter of an Application for authorisation of a business acquisition involving: Ruapehu Alpine Lifts Limited and Turoa Ski Resorts Limited (in receivership) The Commission: M J Belgrave (Chairman) M N Berry P R Rebstock Summary of Proposal: The acquisition by Ruapehu Alpine Lifts Limited of the assets and operations of Turoa Ski Resorts Limited (in receivership). Draft Determination: The Commission determines, on the basis of the information provided to date, that it would be likely to decline an authorisation for the proposed acquisition pursuant to s 67(3)(c) of the Act. Date of Draft Determination: 28 August 2000 CONFIDENTIAL MATERIAL IN THIS DECISION IS CONTAINED IN SQUARE BRACKETS [ ] 2 TABLE OF CONTENTS THE PROPOSED ACQUISITION...............................................................................5 THE PROCEDURES ..................................................................................................5 THE PARTIES............................................................................................................6 Ruapehu Alpine Lifts Limited (“RAL”)........................................................................................................6 Turoa Ski Resort Limited (in receivership) (“TSR”) ....................................................................................6 BACKGROUND .........................................................................................................6 New Zealand Ski Industry .............................................................................................................................6 North Island Ski Fields ..................................................................................................................................8 South Island Ski Fields...................................................................................................................................8 Department of Conservation (“DOC”) ..........................................................................................................9 New Zealand Ski Council (“NZ Ski Council”)...............................................................................................9 Recent Ski Industry Developments ................................................................................................................9 Decision 357..................................................................................................................................................10 THE RELEVANT MARKETS ...................................................................................10 Introduction..................................................................................................................................................10 Market Definition.........................................................................................................................................11 Introduction...............................................................................................................................................11 Product Dimension ....................................................................................................................................11 Geographic Extent.....................................................................................................................................12 Functional Dimension................................................................................................................................18 Conclusion on Skiing Market Definition ....................................................................................................18 Other Markets..............................................................................................................................................18 Conclusions on Market Definition ...............................................................................................................18 COMPETITION ANALYSIS......................................................................................19 Overview ......................................................................................................................................................19 The North Island Skiing Market..................................................................................................................20 Market Concentration ................................................................................................................................20 Constraint by Existing Competitors............................................................................................................21 Conclusion on Constraint by Existing Competitors.....................................................................................21 Constraint by Potential Competition...........................................................................................................21 Conditions of Entry....................................................................................................................................22 Conclusion: Entry Conditions ....................................................................................................................24 3 Assessment of the Constraint by Potential Competition..............................................................................24 Likelihood of Entry....................................................................................................................................24 Extent of Entry ..........................................................................................................................................25 Timeliness of Entry....................................................................................................................................25 Sustainability of Entry ...............................................................................................................................25 Conclusion on Constraint from Potential Competitors ................................................................................26 Constraint from Extended Stay Skiers ........................................................................................................26 Conclusion on Constraint from Extended Stay Skiers .................................................................................26 Constraint from Rainbow Ski Field.............................................................................................................26 Conclusion on Constraint from Rainbow Ski Field .....................................................................................27 Constraint from Other Leisure Activities....................................................................................................27 Conclusion on Constraint from Other Leisure Activities.............................................................................27 Conclusion on Dominance in the Skiing Market .........................................................................................27 PUBLIC BENEFITS AND DETRIMENTS.................................................................28 Introduction..................................................................................................................................................28 The Counterfactual ......................................................................................................................................29 Conclusion on the Counterfactual ..............................................................................................................29 DETRIMENTS ..........................................................................................................30 Allocative Inefficiency..................................................................................................................................31 Introduction...............................................................................................................................................31 The Applicant’s Claim...............................................................................................................................32 The Commission’s View............................................................................................................................32 Conclusion on Allocative Inefficiency........................................................................................................36 Productive Inefficiency ................................................................................................................................36 Introduction...............................................................................................................................................36 The Applicant’s Claims .............................................................................................................................37 The Commission’s View............................................................................................................................37 Conclusion on Productive Inefficiency