Are calls to kill off NHS competition regulations misdirected?

Mary Guy, PhD candidate at UEA Law School and CCP member, has released this press comment:

Competition in the NHS could be managed even if proposed regulations are introduced, according to a researcher at the University of East Anglia (UEA).

It follows warnings from Dr Michael Dixon, chair of NHS Alliance and interim president of NHS Clinical Commissioners, about new rules published last month that aim to introduce competition to the NHS. Andy Burnham, shadow health secretary, has also tabled a motion which, if passed, would see the House of Lords reject the regulations introduced by the government.

Mary Guy, a researcher at the ESRC Centre for Competition Policy at UEA, says that if Labour’s call to reject the regulations is successful, it is unclear what the outcome for the NHS would be.

“However, implementation of the regulations does not mean that competition in the NHS cannot be managed,” she said. “EU competition law makes provision for exceptions, which would mean that where competition is not beneficial because it inhibits the provision of public service obligations, including healthcare, these would not be opened up to competition.

“A further protective mechanism is Monitor’s role as economic regulator for healthcare. Experience in The Netherlands, the only other EU Member State to experiment with economic regulators in healthcare, suggests that the presence of a dedicated healthcare regulator forces the general competition authority to recognise that healthcare is a unique market which cannot be opened to competition in the same way as, for example, utilities.”

The National Health Service (Procurement, Patient Choice and Competition) Regulations 2013 were intended to put the Principles and Rules of Co-operation and Competition (PRCC) used by the NHS Co-operation and Competition Panel (NHS CCP) on a statutory footing.

Ms Guy added: “This appears relatively uncontroversial, given that the NHS CCP was established under the previous Labour government and advised the Secretary of State. What is more sensitive is that Monitor – an independent regulator – will be enforcing the Regulations, which include powers for it to investigate anticompetitive agreements and abuses of dominance. This is generally understood as the ‘full force of EU competition law’.” 

Mary recently wrote for our Competition Policy blog on the topic of “Monitor’s Advice to the OFT and the New Healthcare Regulation

Reforms of private enforcement of competition law receive cautious welcome

In the light of BIS’ proposals to reduce the cost of legal action and ease access to litigation, CCP members Sebastian Peyer and Morten Hviid put out this press release last week (29th January):

Plans to make it easier for groups of consumers and companies to take legal action against anti-competitive businesses received a cautious welcome from competition experts at the University of East Anglia today.

While welcoming the essential reform of the UK competition enforcement regime, Prof Morten Hviid and Dr Sebastian Peyer of the ESRC Centre for Competition Policy (CCP) at UEA doubt the benefits of class action for consumers, saying it could raise litigation costs.

The proposals, announced today by the UK Department for Business, Innovation and Skills (BIS), aim to reduce the cost of legal action and ease access to litigation. It would see the Competition Appeal Tribunal (CAT), an expert body for competition claims, becoming the main forum for all legal actions related to competition law, including a new fast track procedure, and the introduction of opt-out collective redress, or class actions, to empower consumers. The third proposed change is promoting mechanisms to encourage alternative dispute resolutions (ADR), to make sure that wherever possible any disputes are resolved without resorting to cour! ts.

“Individual claims against firms that have violated competition law have been the least effective part of competition law enforcement in the UK,” said Dr Peyer. “BIS’ plan contains anticipated fixes for well-known litigation problems but also embraces a novel and controversial class action device.”

Cartels and other violations of competition law can lead to small individual losses that harm a great number of individuals. Consumers or businesses are often unwilling to risk legal proceedings to recover small losses. BIS proposes that a representative body can bring an opt-out class on behalf of all affected consumers and businesses without them having to ‘sign in’.

However, collective actions as a means to compensate consumers or businesses are costly and not very effective and Prof Hviid said the proposal does not empower consumers: “The reform does not empower consumers but consumer organisations on behalf of consumers. Overall, the collective action proposals are patchy and likely to raise litigation costs.”

Dr Peyer stresses: “A key test will be whether compensation reaches consumers. Most direct victims are other businesses. Consumers must prove both that the cartel caused harm and that it was passed on by those businesses.”

Prof Hviid added: “Making CAT the main court for all legal actions was expected and will redress the current complications of competition litigation. A fast track procedure may, depending on its design, help to reduce notoriously high litigation costs and the time parties spend in court.”

Prof Hviid and Dr Peyer say that while encouraging the use of ADR may reduce time and costs of a court-bound disputes resolution, the CCP response to the government’s consultation on reforms shows that ADR are already available in many instances in which parties would like to settle the case out of court. However, consumers could benefit from a court-approved redress schemes provided that they receive payments made under the scheme.

OFT’s Chief Economist to join University of East Anglia

Amelia Fletcher

Dr Amelia Fletcher, currently Chief Economist at the Office of Fair Trading (OFT), is to join the University of East Anglia (UEA) as a Professor of Competition Policy, it was announced today.

Dr Fletcher will become a professor in the Norwich Business School and a member of UEA’s Centre for Competition Policy – a leading research centre, funded by the Economic and Social Research Council, which specialises in the study of competition policy and regulation.

She joined the OFT in 2001, having previously worked as an economic consultant for Frontier Economics and prior to that London Economics.

Prof Neil Ward, Dean of the Faculty of Social Sciences at UEA, said: “We are delighted with the appointment of Amelia to this chair. As well as her outstanding intellect, she has an unparalleled track record as a senior policy-maker and practitioner in competition policy and considerable experience in commissioning and managing research.”

Dr Fletcher, who takes up her new position in April, said: “I have thoroughly enjoyed my time as Chief Economist at the OFT and am immensely proud of its record of economic and policy excellence, as well as its achievements in making a difference for consumers.

“However, I feel ready for a new challenge and am honoured to be taking up this chair at UEA.

The Centre for Competition Policy is a world-leading academic centre in competition policy and I look forward to working alongside colleagues to develop valuable new academic initiatives, as well as supporting the established work of the centre and building up my own research profile.”

Dr Fletcher was also a prominent figure in British indie music in the 1980s. She was the lead singer and songwriter with cult band Talulah Gosh, and now records with her current band Tender Trap. Last month former band-mate Elizabeth Price won the Turner Prize, prompting Talulah Gosh to be described in the Guardian as “one of the most over-achieving indie bands in history”.

What happens if consumers do not pay attention?

The policy brief we posted last week was also put out as a press release (below). Further to that, Prof Daniel Zizzo will present a lecture based on the research today (Monday November 26). Entitled ‘What happens if consumers do not pay attention?‘, it will consider how the liberalization of the market for services such as electricity and gas has resulted in few consumers shopping around for better deals. The lecture is free to attend and takes place at 6pm in Lecture Theatre Arts 01.02, UEA, Norwich

Consumers should be ‘nudged’ into action in order to get the best energy deals according to new research published today by the University of East Anglia.

The study also found that simplifying the number of energy products on offer does not necessarily help householders get the best deal.

The findings come just days after the government announced plans to force energy companies to reduce the number of tariffs they offer and place their customers on the cheapest one.

According to the study, consumers are likely to stick to their existing ‘default’ tariffs, even though they are not the cheapest, because they do not pay enough attention to the task of finding a better deal.

However, a ‘smart nudge’ policy of automatically switching default tariffs to the best one at regular intervals would address the problem of consumer inattention and inactivity, and achieve better results for consumers while leaving them free to choose an alternative tariff if they wish to. Reducing the number of tariffs to as few as four in the market – a more drastic reduction than that proposed by the government – was found to improve the results for consumers, but when the problem of customer inattention was taken into account, even such a severe reduction only partially helped.

On Tuesday Energy Secretary Ed Davey said firms would only be able to offer four core tariffs for both gas and electricity as part of government plans to get customers a better deal on energy. Customers would also be moved on to their best deals automatically, something Prime Minister David Cameron promised in a surprise announcement last month. Industry watchdog Ofgem had also announced plans to force suppliers to tell customers about the cheapest gas and electricity tariffs they have on offer.

Prof Daniel Zizzo, Dr Stefania Sitzia and Jiwei Zheng, of UEA’s School of Economics, suggest that the government should consider the feasibility of a smart nudge where consumers would be switched to the best deal at regular intervals unless they choose otherwise. Their smart nudge solution, while coming closest to David Cameron’s, is more radical and is likely to create greater competitive pressure between the companies.

The study Complexity and Smart Nudges with Inattentive Consumers, published by the ESRC Centre for Competition Policy at UEA, found a significant proportion of people get a poor deal either because of sticking to their existing ‘default’ option or because of switching to a bad option. Even with the presence of a search engine to help them, consumers are likely to stick to defaults and achieve worse deals.

Prof Zizzo said: “Tariff complexity and the number of tariffs matter, but inattention matters as well. In order for consumers to reap benefits from competition in service markets, they have to be actively engaged in spotting the best deal that is available to them. The reason why reducing the number of tariffs, and therefore the complexity of the task, solves the consumer inertia problem only partially is because customers do not pay enough attention to the task in the first place and as a result just stick to the default option.

 “We suspect that time-constrained consumers may simply not pay attention to tasks regarding the choice of services. It may not be in their minds in the way in which saving money at a supermarket buying groceries is. And unlike the regular grocery shop, there is a not a point in time in the day, the week, the month or even the year where, as a routine, people are required to pay attention to the task of choosing energy supplier, as there is always a default supplier.

“Regulatory measures to reduce complexity are, therefore, likely to be of only partial value. A crucial issue from a policy viewpoint is to consider how to raise consumer attention or otherwise deal with consumer inattention.”

The researchers studied the UK gas and electricity retail markets to explore the psychological motivations affecting consumer behaviour. Using a series of experiments, involving 460 participants, they tried to identify whether customers are likely to stick to their default tariffs and so achieve a poor deal, why they do this, and what can be done about it.

They also tested the effect of complexity – in terms of tariff structure, number of tariffs and the bundled nature of products – and the impact of inattention on consumer behaviour.

Prof Zizzo added: “We show that by using a ‘smart nudge’ which automatically identifies the best tariff and uses this as the default choice, and making the power of default work for instead against consumer welfare, we can obtain the best outcome around 85% of the time.”

Another smart nudge tested by the researchers was simple awareness-raising, by which participants were advised of the existence of a better tariff when they had made a worse choice. However, they found a generic warning that a better energy tariff exists in the market does not help consumer choice.

Participants in the experiments took the role of consumers deciding on tariffs, where a financial loss was incurred if they did not choose the best tariff.

While the study focused on the UK electricity and gas markets, the authors suggest the lessons drawn from it are likely to be more general and could apply to other service markets where choice is possible, such as internet services, bank accounts and mobile phone contracts.

CCP member comments on Ofgem and Government plans to help consumers get better energy deals

Prof Catherine Waddams of CCP comments on Ofgem and Government plans to help consumers get better energy deals:

“Ofgem’s new proposals encourage consumers to find a better deal, and do not discourage companies from offering lower prices, unlike their earlier non discrimination clauses and the Prime Minister’s current proposals. Government and regulator must decide whether they are encouraging competition or protecting energy consumers through regulation. If they try to do both, we will all likely get the worst, not the best, of both worlds.”

CCP Part of £8 Million Project

Announced today, CCP is delighted to be part of CREATe:

From illegal file-sharing to the market conditions needed to boost innovation – researchers from the University of East Anglia will investigate how creative industries can be protected in the digital age as part of a multi-million pound project.

The new Centre for Creativity, Regulation, Enterprise and Technology (CREATe) launches today and is designed to benefit the UK’s creative industries – worth around £60 billion, or six per cent of the entire economy.

The £8 million project brings together internationally-renowned researchers in the fields of law, business, economics, technology, psychology and cultural analysis to study the problems of copyright and business models in the creative worlds.

To read the full announcement, please see UEA’s press release.

€2,500 award for CCP Researcher

Anna Rita BennatoWe are delighted that one of our post doctoral research fellows, Anna Rita Bennato, has been awarded a prize of €2,500 (first place ex aequo) by Area Science Park, a multi-sectoral academic science and technology research centre in Trieste, Italy. The award was made for her PhD work, “Essay on Intellectual Property Rights”.

You can read more about this award (in Italian!) here.

Researcher Receives $10,000 Award in United States

Really good news for Sebastian Peyer, one of our Post Docs:

CCP Post Doctoral Research Fellow, Dr Sebastian Peyer, has been chosen as a Scholar-in-Residence by the Antitrust Law Section of the American Bar Association (ABA) and invited to undertake his competition policy research in Washington D.C. Applications for the inaugural award were invited from junior academics and recent Ph.D. students worldwide.

Dr Peyer will visit the United States for three months in spring 2013 to continue his research on private antitrust enforcement. During the visit he will interact with members of the U.S. antitrust community and participate in the annual ABA Antitrust Spring Meeting in Washington D.C. – the largest meeting of antitrust specialists worldwide. The Scholar-in-Residence-Programme will also enable him to establish contact with key federal agency personnel as well as a range of academics, lawyers, and consulting firms.

Sebastian commented “I am very delighted to receive the award. My research compares European and US private antitrust enforcement and I have an unique opportunity to undertake the US-related research in Washington D.C. . I am very much looking forward to engaging with the members and contacts of the ABA.” 

More about the Section for Antitrust Law at the American Bar Association can be found here.

Consumer focus for University of East Anglia competition conference

The press release for our conference next week:

A conference on anti-competitive business practices such as price-fixing and bid-rigging will take place at the University of East Anglia next week.

The Office of Fair Trading has uncovered high-profile cases including sales of replica football kits, airline price-fixing, and bid-rigging in the construction industry – resulting in multi-million pound fines for companies involved.

The two-day event will focus on how consumers, who pay over the odds as a result of such practices, can successfully claim compensation.

The conference has been organised by the university’s ESRC Centre for Competition Policy (CCP) and will see an international line up of economic, law, and political experts talking about their research and experience.

Speakers will include John Holmes from Which? magazine and Iain Mansfield, assistant director of competition policy at the Department for Business, Innovation and Skills (BIS).

Dr Andreas Stephan, from the Centre for Competition Policy at UEA, said: “There are a number of obstacles for consumers claiming compensation. In particular, the financial loss is typically shared between a large number of consumers. But while individual losses might be small, the cumulative loss to the economy is potentially enormous.

“The problem in the UK is that we don’t allow for collective legal actions on an ‘opt-out’ basis.

“When the consumer group Which? attempted to sue for compensation over replica football kits it was unsuccessful because of the cost of identifying affected victims and getting them to sign up.

 “In the US however, lawyers are able to sue on behalf of a group of consumers without each consumer needing to specifically ‘opt in’ to the legal action.

“The UK government is currently consulting on such a system, which would make it much easier to sue companies for anti-competitive practices.”

Iain Mansfield (BIS) will lead a panel discussion on the government’s consultation at the event.

The conference, entitled ‘What Do Public and Private Sanctions in Competition Policy Actually Achieve?’ takes place on June 14-15 in the Thomas Paine Study Centre at UEA.

The conference has been organised by Dr Sebastian Peyer (CCP Post Doctoral Research Fellow) and Dr Andreas Stephan (CCP Member, Senior Lecturer in LAW). We still have some places available, if you’d like to attend you can find out more here.

CCP conference