The Commerce Commission is set to approve a merger of the country's remaining wool scouring operations, even though it will create a monopoly.
Cavalier Wool Holdings is seeking clearance to acquire New Zealand Wool Services International's wool scouring business and assets.
In a draft decision, the Commission said it would allow the takeover.
Cavalier is the largest scouring operator with plants at Napier and Timaru, cleaning wool for exporters on a commission basis.
Wool Services International is New Zealand's biggest wool exporter, but also runs scours at Napier and Christchurch.
The two companies reached an agreement last year to amalgamate their wool cleaning services, in response to a declining wool supply and increasing competition from Chinese scours.
The Commerce Commission gave Cavalier permission to buy WSI's wool scouring assets more than three years ago, but it did not proceed and the company has had to apply again.
If the merger goes ahead this time, the wool industry will end up with just two scouring plants, one in Napier and one in Timaru.
The commission acknowledges that the move would give Cavalier a monopoly on wool scouring and the supply of wool grease, a by-product of the cleaning operations.
It also concedes that the merger provides the potential for Cavalier to raise prices.
However the commission thinks the public benefits will outweigh the loss of competition. They would include lower production and administration costs and freeing up industrial sites for other uses.
The commission is asking for further submissions by 21 April, before issuing its final decision.