Here at the CMA, in these few months since our last Promoting Competition bulletin, we’ve continued to see a lot of activity and some big milestones. This has included a report on our provisional findings in the retail banking market investigation, decisions in over 20 mergers, including our provisional decision in the BT / EE merger, Competition Act enforcement involving international pharmaceutical companies and the outcomes of 3 regulatory appeals in the electricity distribution and water sectors.
I’d like to focus on 2 areas of particular interest – how the CMA supports consumers and how the CMA contributes to the new government’s economic agenda.
Making markets work well for consumers
Our statutory duty is to promote competition, both within and outside the United Kingdom, for the benefit of consumers. We therefore strive to put consumers at the heart of everything we do. In practice this means paying close attention to the reality of how consumers, and businesses, behave. This is a theme common in our market investigations into the energy and retail banking markets. Our provisional view is that high levels of customer inertia and disengagement lead to lack of switching. This removes the pressure on firms to offer good service at keen prices, and inhibits dynamic competition in these markets, reducing incentives to innovate. We need to identify remedies which help to motivate and empower consumers to identify better options and, where necessary, switch provider. We’ve been working with BIS as they prepared to launch their call for information on switching and price comparison websites.
Behavioural economics is increasingly central to our work and we seek to understand the reality of the consumer experience. To do so, we draw on the expertise of those who are experts on how consumers think and act. A recent example is our work on online reviews and endorsements. We found that 54% of consumers use online reviews and that some £23 billion a year of UK consumer spending is potentially influenced by online reviews.
Consumers’ switching behaviour and their use of price comparison websites have been a feature of several of our biggest projects, including the private motor insurance, energy and retail banking market investigations. In our projects, we’ve benefitted from the knowledge of The Behavioural Insights Team. We recently had an ‘all-staff’ session where its Chief Executive, Dr David Halpern, explored some of the many reasons why as consumers we act as we do. He spoke about some of the simple yet effective ways that consumers can be ‘nudged’ towards a different course of action.
Contributing to the government’s agenda
The government has set out a programme for business and the economy which focuses on deregulation and increasing productivity. These are both challenges in which the CMA can play an important role, and is already doing so.
There is a whole chapter in the government’s productivity plan devoted to open and competitive markets with the minimum of regulation, recognising that such markets, supported by robust competition policy, promote innovation and long-term growth.
Our own research, published alongside the productivity plan, found that competition drives productivity in 3 main ways:
- First, within firms, competition puts a discipline upon managers to make their firms more efficient.
- Secondly, competition ensures that more productive firms increase their market share at the expense of less productive ones.
- Thirdly, and perhaps most importantly, competition drives firms to innovate, coming up with new products and processes.
The government’s Britain is GREAT campaign highlights innovation and entrepreneurship as among the very best features of what Britain has to offer. Returning to the CMA’s statutory duty, we promote competition both within and outside the UK. An efficient and fair competition and consumer regime helps to create a dynamic economy and make Britain a great place for businesses to invest and grow. It is important to potential investors that they are confident that UK firms enjoy an effective competition regime.
The CMA seeks to minimise unnecessary regulation in a range of ways. The merger regime we operate allows companies to complete mergers without prior notification and only notify us where competition problems may arise. We also apply the ‘de minimis’ threshold. That avoids unnecessary burdens, particularly for smaller businesses. We are making good progress with our comprehensive review of historical merger and market remedies, to ensure that businesses are not constrained by regulations which have become unnecessary. We have made a clearer commitment to considering sunset clauses in market investigation remedies (where we specify a date after which they will no longer apply). This helps to ensure that we focus our efforts on remedies which still have a useful role to play in making markets work well for consumers and business.
We set up and chair the UK Competition Network, bringing the sector regulators together to discuss key issues and share best practice on how to make best use of their Competition Act 1998 (CA98) powers ahead of their sector-specific powers. The Enterprise and Regulatory Reform Act 2013 gave the CMA a stronger remit to co-ordinate the use of competition policy in the regulated sectors. This is so important because they account for some 25% of the economy and provide vital inputs for all business activity today – energy, credit and connectivity. Encouragingly, we saw a useful uptick in competition cases last year, an early sign of change.
Our Chairman, David Currie, elaborated on these and other points in his recent speech at the Scottish Council for Development and Innovation event on agile regulation.
I recently spoke about the need for more agile and market-oriented interventions into digital markets, in a speech to the German economic regulator’s annual conference.
Enforcing criminal and civil law
In a speech today, our Executive Director for Enforcement, Michael Grenfell, reaffirmed our determination to protect consumers by the vigorous enforcement of competition law. We're resolute in our aim to increase the volume and speed of cases, and to do so while maintaining high standards of fairness and rigour.
You may find this recent blog interesting. Stephen Blake (Senior Director, Cartels and Criminal) asks ‘What’s next for criminal cartel enforcement?’, following the verdicts in the galvanised steel water tanks trial. He concludes that the CMA remains strongly committed to investigating and prosecuting individuals who engage in criminal cartel conduct and that the need for businesses and individuals to ensure that they comply with competition law remains as great as ever.
We have another busy period ahead of us. We look forward to our final report into the BT / EE merger; our final report into competition in passenger rail services; our provisional decision on remedies in the energy market investigation; the final decision in the first of our 2 big CA98 pharmaceutical cases; the launch of a suite of tools to help small businesses understand and comply with competition law; and the consultation on our draft annual plan for next year.