‘The Affordability of Utilities’ Services in the EU: Extent, Practice and Policy’

CCP’s Autumn Seminar Series continues on Friday 13th November with our very own David Deller (CCP) evaluating ‘The Affordability of Utilities’ Services in the EU: Extent, Practice and Policy‘. The seminar is based on an extensive research project that David has undertaken with Catherine Waddams (CCP) for the Centre on Regulation in Europe (CERRE). The findings of the project are available here, and an abstract for the seminar can be found below.

Abstract

The affordability of utilities (energy, water, telecoms and transport) is a major issue on European policy agendas. This seminar reports the key findings from a recent research project into this topic conducted for the Centre on Regulation in Europe. Key results are highlighted from the most comprehensive mapping of utility affordability in the EU yet compiled and analysis of household-level expenditure data from countries including the UK, France and the Republic of Ireland. Major findings are the stark differences in expenditure shares devoted to utilities between ‘old’ and ‘new’ Member States and the pitfalls of using high-level affordability metrics to evaluate the performance of policies designed to improve utility affordability. The empirical results will be complemented by overviews of different metrics that can be used to evaluate utility affordability and the effectiveness of policies used to tackle fuel poverty.

 

David’s presentation takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03. 

‘Collective Switching’

Our seminar series continues on Friday 12th June with the tremendous Catherine Waddams (CCP and NBS) presenting ‘Collective Switching‘. Catherine is a Professor of Regulation at the Norwich Business School. Her research interests lie in the area of Industrial Organisation, and she has published widely on privatisation, regulation and the introduction of competition into markets, particularly energy markets. An abstract for her presentation can be found below.

Abstract

We had the opportunity to observe over a hundred thousand ‘real’ switching decisions in the retail energy market by participants in The Big Switch collective switching exercise, organised by Which?, in 2012.  Our main initial findings are that:

1. The probability of switching rises with increases in the gains available;

2. Despite substantial gains available (median value around a tenth of the bill), and very little further effort required to switch, only a third of participants chose to change their supplier;

3.Participants who saw two offers were less likely to switch than those who saw only one.

We are particularly interested in understanding what lies behind this third finding.

The seminar takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03.

This presentation is based on the results gathered by CCP during the Big Switch project, in conjunction with the Which? consumer group. You can download the full CCP report at the following link [PDF, 1.75MB].

CCP research cited in CMA issues statement on GB energy markets

Research undertaken by two CCP members has been referenced in the Competition and Market Authority’s updated issues statement as it continues its on-going investigation into British energy markets.

A CCP Working Paper by Professor Catherine Waddams (CCP & Norwich Business School) and Dr Minyan Zhu (CCP & Nottingham University Business School) is cited by the CMA in relation to the impact of the introduction of the Standard Licence Condition 25A (the SLC 25A non-discrimination clause) in 2009. The paper, ‘Pricing in the UK retail energy market 2005-2013‘, found that the non-discrimination clause prompted an adverse effect on competition in the energy market after its inception. An abstract for the paper can be found below.

UK governments and the energy regulator have shown increasing concern about the health of competition in the residential energy market, following their pioneering deregulation at the end of the last century. We identify the effects of introducing the non-discrimination clauses in 2009, a major regulatory intervention and the first since deregulation. We explore the effect of this intervention on the price movements of the six major players, and find that the nature of competition in the industry has changed, with less effective rivalry between the regional incumbents and large regional competitors following the intervention; companies seem to have ‘retreated’ to their home regions, leaving a market where pricing behaviour resembles more closely a duopoly between British Gas and the regional incumbent.

See also:

Catherine Waddams, ‘Is an in-depth energy market inquiry worth it?‘ (March 27, 2014) Competition Policy Blog.

Morten Hviid & Catherine Waddams, ‘Non-discrimination Clauses in the Retail Energy Sector‘ (2012) 122 The Economic Journal 236-252.

CCP Research Bulletin, Issue 27 – Now available

The Summer 2014 edition of the CCP Research Bulletin is now available for download [PDF, 332KB].

Research Bulletin (Summer 2014)

Articles in Issue 27 include:

‘At last, a competition inquiry for energy – will it bring relief or disappointment?’ (Catherine Waddams)

‘Differentiated tax on differentiated products markets’ (Anna Rita Bennato and Franco Mariuzzo)

‘The processes for regulatory appeals: One size does not fit all’ (Despoina Mantzari)

‘Do small business customers need more buyer protection?’             (Amelia Fletcher, Antonios Karatzas and Antje Kreutzmann-Gallasch)

‘What happens when collusive firms try to avoid antitrust punishment?’ (Subhasish M. Chowdhury and Frederick Wandschneider)

‘The use of general merger control in English healthcare’ (Mary Guy)

Plus: News from CCP, upcoming events and our book launch.

Live comments from the CCP Summer Conference 2014 – Session 1

Session 1: Introduction – What is a Problem Market?

Stephen Davies  (CCP, UEA) opened with some personal thoughts on clarifying “problem markets”. While no textbook definition exists, we know that certain markets generate a stream of work for competition authorities, despite any obvious contravention of competition or antitrust law. Could it be that these markets are “too hot to handle”? Stephen’s personal list of problem markets includes retail energy, supermarkets and healthcare. In more academic terms, the issues can be characterised in terms of tacit collusion, behavioural consumers, manipulation of thin markets, divergent incentives and public policy objectives.

CCP Session 1 Steve

Amelia Fletcher (CCP, UEA) explored the “gap” between competition and consumer law via two themes: the “gap” between core competition and consumer law, and the issue of potentially costly and ineffective ex ante remedial intervention which may have unintended consequences. While ex post standard competition law may be considered to address issues arising on the consumer side (in accessing, assessing and acting on relevant information), it deals less well with supply-side issues such as existing structural issues and market manipulation. Sectoral regulators and the CMA (via market investigations) are increasingly involved in this “gap”, with a current focus on search and switching costs and facilitating entry and expansion. However, there may be a need for further considerations, such as whether problems have been misdiagnosed and remedies poorly designed.

CCP Session 1 Amelia

 

Ashleye Gunn (Which?) Started by challenging the (pre-financial crisis) accepted wisdom that “markets always work” by calling for qualification of buzzwords such as “choice” (needs to be meaningful), “innovation” (needs to benefit consumers) and “information” (there is a need for clear and comparable pricing information). Which? uses two tests identify problem markets, and specifically the source and extent of ‘problems’ for consumers: whether the market is achieving its aims, and whether it is working for consumers as well as business. In particular, confusing pricing has been identified as central to problems because it can lead to consumers not driving competition. Which? campaigns therefore incorporate a range of different issues from ‘everyday frustrations’ to significant structural and cultural issues in major sectors. These campaigns involve not only traditional policy lobbying but also direct intervention in markets where consumers are at a disadvantage.

CCP Session 1 Ashleye

Catherine Waddams (CCP, UEA) introduced CCP’s collaboration with Which? on The Big Switch (TBS) by clarifying aspects of a well-functioning market and how energy may differ from this, for example by possible softening of some rivalry between companies. The study used probit analysis to identify the effects of multiple factors on switching decisions. Key results were that seeing two offers rather than one reduced the likelihood of switching by five percentage points, and that confidence was an important factor in determining activity.

CCP Session 1 Catherine

Live comments from the CCP Summer Conference 2014

Welcome to the Live Blog of the CCP Summer Conference 2014!

Over the next two days, you can follow CCP’s 10th anniversary conference on “Problem Markets” (ranging from energy to health) with session blogs by CCP’s economics, law and political science PhD researchers Khemla Armoogum, Elizabeth Errington, Mary Guy, Richard Havell and Liang Lu.

You can also follow us on Twitter using #ccp2014conf courtesy of David Reader.

After a brief introduction and warm welcome by CCP’s Director Morten Hviid, we will kick off at 9.45am on Thursday 12th June with Steve Davies, Amelia Fletcher, Ashleye Gunn and Catherine Waddams discussing “What is a problem market?”.

Over two days we will be covering aspects as diverse as the US and EU experience of managing problem markets, demand and supply-side issues and competition with divergent public policy concerns in markets ranging from energy to health.

Day 1 (Thursday 12th June) sees presentations by:

More to follow about Day 2!

In the meantime, we hope you will enjoy the conference and look forward to receiving your feedback!

 

CCP Conference speakers montage 2

Policy Briefing: Consumer behaviour in the British retail electricity market

Policy Briefing of CCP Working Paper 13-10:

Flores M and Waddams Price C, ‘Consumer behaviour in the British retail electricity market’ (PDF, 759KB).

BACKGROUND

  • Consumer activity plays a crucial role in securing effective markets. Understanding what determines consumer activity, and how this varies between customers, is essential to maximise the effectiveness of policies targeting consumer searching and switching.

  • Despite government efforts to promote consumer activity, the European Commission finds that consumers often fail to take advantage of the potential gains available from switching suppliers in liberalised energy markets.

  • In the UK there is growing concern that the competition process has not worked well, despite the energy regulator’s promotion of consumer empowerment and activity.

Read more of this post

Non-Discrimination Clauses in the Retail Energy Sector

Each month we collect up and record all the outputs made by CCP members. To give people an idea of the scope of the research we undertake we publish the abstracts and links to papers written by our colleagues in the Centre.

Morten Hviid and Catherine Waddams have published Non-Discrimination Clauses in the Retail Energy Sector in The Economic Journal.

The British energy regulator has recently reviewed a non-discrimination licence condition imposed to ensure that energy retailers charge the same mark-up in different regions. Loyalty by many to incumbent firms necessitated heavy discounting by entrants to attract customers, which had led to regional price discrimination. Matching characteristics of the energy market to models of discrimination, we identify the necessary conditions for the licence condition to have a positive effect for consumers, and particularly ‘vulnerable’ consumers. The licence condition is likely to have reduced competition in the mainstream energy markets, which seems confirmed by the regulator’s subsequent review of the retail market.

Responses to DECC and BIS consultations

We’ve just uploaded two more responses to consultations:

Catherine Waddams response to Department of Energy and Climate Change: Ensuring a better deal for energy consumers. Download this response (pdf, 526KB)

Morten Hviid and Catherine Waddams response to Department for Business, Innovation and Skills – BIS consultation on extending the range of remedies available to public enforcers of consumer law. Download this response (pdf, 229KB)

We’ve got our responses dating back to 2008 on our website. You can find them all here.

Retail Energy Markets: Does Competition offer enough Protection?

From the Autumn 2012 Research Bulletin, by Catherine Waddams, Professor in Regulation

This article examines some of the issues facing the UK energy regulator as it attempts both to promote competition and ensure that vulnerable households are not disadvantaged in the process. Some of the remedies introduced after the 2008 Energy Supply Probe, including the non discrimination clauses, have proved to be less effective than hoped, and in some cases to have been counterproductive and to have slowed the competitive process. Both regulator and government have to choose in this highly sensitive household energy sector whether to focus on the competitive process, which is likely to lower average prices and encourage innovation, but cannot guarantee particular outcomes for given consumers; or on regulation which can protect vulnerable groups, but probably at the expense of higher prices for consumers as a whole. Read more of this post