Why the CMA is wrong in its proposals for reform and what should be done instead

March 7, 2019

(by Bruce Lyons) The Chairman of the CMA, Lord Tyrie, has written a 44-page letter (including annex) to the Secretary of State for Business, Greg Clark, setting out a long list of legislative proposals.[1] Two motivations are given: “First, the growth of new and rapidly-emerging forms of consumer detriment, caused in part by the increasing digitalisation of the economy, requires more rapid intervention, and probably new types of intervention… Second, there are increasing signs that the public doubt whether markets work for their benefit.” I agree with the spirit of these points and that they require action. However, I disagree with some of the CMA’s key proposals. Lord Tyrie appears particularly frustrated with the lengthy appeals system which limits his ability to act firmly and swiftly. Unfortunately, the overall package of proposals would reverse hard-won progress in competition policy over the last 20 years and lead to a paternalistic, arbitrary and unrestrained Consumer Interest Authority. In this blog, I briefly explain some of my concerns. I then set out two alternative proposals that would more directly and appropriately address public concerns over unfair pricing and result in better decisions without prolonged appeals. Read the rest of this entry »


The deterrent effect of competition authorities’ work

September 15, 2017

(by Mike Walker^) In his post last month, Steve Davies bemoaned the lack of evidence on the magnitude of harm deterred by the activities of the Competition Agencies. He presented some estimates from research in CCP on cartel deterrence, concluding most strikingly: “On the most conservative of our estimates, more than half of all potential cartel harm never occurs, because it is deterred. This is very much a lower bound, and the proportion could be as high as 90%.” Read the rest of this entry »


An energy price cap could kill competition – here’s a better idea

May 3, 2017

(by Catherine Waddams) The Conservatives have announced that their manifesto will include a pledge to cap the price of energy bills. This comes just two years after Labour campaigned to freeze household energy prices. The Tories are yet to flesh out the details of their plan, but it has already drawn strong reactions both for and against. The price of energy stirs deep emotions in part because it is a necessity, one which absorbs a much higher proportion[1] of the income of those in poverty and “just about managing” than of richer households.

But there are two other important features: Read the rest of this entry »


The dangerously distorted incentives created by the CMA’s performance target

August 5, 2016

(by Bruce Lyons)[1]  The CMA has recently published its annual report and associated impact assessment.  Its performance management framework commits the CMA “to achieving direct financial benefit to consumers of at least ten times our cost to the taxpayer.” [Annual Report 2015-16, p.66].  Target setting and performance measurement are an important part of performance management.  However, the precise way that the government requires the CMA to justify its funding is dangerously distortionary. Read the rest of this entry »


The CMA’s Energy Market Remedies: Boxed into the Wrong Corner?

April 14, 2016

(By David Deller) In an earlier blog post, I provided an initial reaction to the CMA’s provisional remedies for the UK energy market. This blog post considers the underlying assumptions that appear to have provided the ‘envelope’ for the remedies that the CMA considers suitable and proportionate. I critique the CMA’s reasoning in three core areas: (i) the size of interventions that could be justified by the estimates of harm; (ii) why the headline harm estimates are likely to be overestimates; and (iii) the limited evidence for concluding that smart meters are a panacea to low consumer engagement. After such a lengthy investigation it is disappointing to see such weaknesses in reasoning. Read the rest of this entry »


How weak is customer response in the energy market, why, and what is the benchmark?

March 17, 2016

(by Catherine Waddams) In its provisional decision on remedies for the Energy Market, the Competition and Markets Authority measures weak customer response by the amount of money which is ‘left on the table’ by customers who do not switch to cheaper tariffs.  However, research at the Centre for Competition Policy shows that understanding such inertia is complex, and that consumers differ considerably in their propensity to change suppliers.  This variation is found even among comparatively well informed respondents who are aware of potential gains and the time it might take them to search for and switch to a better deal, and even after accounting for observable demographic and other factors, and for consumer expectations.  This matters both for designing an effective package of remedies and, in due course, for evaluating their success.  Why? Read the rest of this entry »


Should Energy Customers be Empowered or Protected?

March 14, 2016

(by Catherine Waddams) The Competition and Markets Authority (CMA) has argued that competition is the way to empower most energy customers, but that prepayment users need additional protection. The compromise highlights the tension between competition and protection, because although competition is often the best way to ensure the lowest average prices and highest service quality for consumers on average, it is a process which carries no guarantees about the outcomes, nor about which particular customers and providers may win and lose from the process. Read the rest of this entry »