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.
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.
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.
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.