How we’re revitalising markets for economic growth
MARKETS when they work well are incredibly powerful. When we drive around we don’t have to think about the supply chain needed to produce the 30,000 or so parts that go into a modern car. As we shop for groceries we don’t need to consider what it takes to assemble fresh food from dozens of different countries around the world. If we think at all about what the next generation of digital devices or online services will bring, it is only with confidence and expectation that we will be offered exciting new functionality and a range of models and prices.
In all of these markets we let the suppliers have the expense of research and development, and the worry of logistics, unsold stock and changes in fashion. Our job as consumers is just to choose what we want from a seemingly ever wider choice.
Perhaps it is because we have got used to markets performing so well that we can be intolerant when we don’t get the choice or value we’ve come to expect. Consumers used to the power of choice don’t think much of companies who try to restrict how they buy or use a product. We get impatient when made to queue in a call centre, retail outlet or doctor’s surgery. If we are given an appointment time or delivery window we expect the supplier to stick to that – unless we want to change it. And the digital generation can hardly comprehend a service provider without an effective digital channel.
As the Competition & Markets Authority (CMA), newly launched just this week, our job is to make sure markets work well for consumers, business and the economy. In most sectors of the economy, we can stand aside and let the market work its magic in satisfying the diverse demands of consumers. In a small minority of markets we have to step in. To deal with firms who have tried to protect themselves from rivals and exploit their customers by forming cartels. Or to deal with a business with a dominant position in a market that tries to squeeze out an unwelcome new competitor. And to ensure that essential protections for consumers, such as fair contract terms, are observed by all companies. In all these cases the law must be upheld, and the CMA is the primary enforcement body to do this.
There is another category of markets in which the primary issue is not enforcement of the law but where there may still be signs of inadequate competition and markets potentially not working well for consumers. One such market is energy, where the CMA recently joined with Ofgem and OFT to produce a joint competition assessment. A full Market Investigation is now in the offing. Another sector under scrutiny is retail banking, where the CMA is due to produce a report in July on the market for SME banking and Personal Current Accounts. This week we completed our investigation into the private healthcare market, which will improve competition including by ensuring that in future patients have better information on which to choose the consultants and hospitals they pay for. And we will shortly be publishing provisional findings on the payday loans market.
Studies and investigations of this kind can come up with far-reaching market reforms, such as the decision requiring the break-up of the London airports monopoly, which led to the sale of Gatwick and Stansted by the owners of Heathrow, and the many improvements subsequently enjoyed by airport users. In other cases behavioural remedies are developed to help reset the market, such as the requirement on public companies to put their audit out to competitive tender at least every 10 years. And it is also possible to find nothing much wrong with a market, and leave it undisturbed, as in the case of the Pay TV market investigation in 2012, which took on board compelling evidence of how the market was changing. In all such cases it is important that the market assessment reflects a careful sifting of the evidence by independent experts, and interventions are only made by the competition authority where they are clearly justified and proportionate.
Well directed interventions to turn around under-performing markets can bring seriously large benefits for consumers and for business. Overall the CMA has to generate £10 in direct consumer benefit for every £1 we spend. But the indirect benefits are at least as significant. For every completed cartel case, 28 other potential infringements are deterred. By promoting a culture of compliance with competition and consumer law, we give firms and investors confidence in the level playing field, and consumers confidence in their purchases. Companies that have to be fit to thrive in their domestic market are more likely to compete effectively in export markets. And by using competition to stimulate productivity and innovation in markets, we can help to drive the economic growth we need.
Alex Chisholm is chief executive of the Competition & Markets Authority.