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Competition on trial

Last updated on 11/05/2016
Is there effective competition in the retail markets for gas and electricity? That's the question posed by the Energy Regulator in a new study. If there's not , there's the promise to make changes.

I can help them with the first part of their task. On the assumption that prices are not as keen as they could be, you can argue there's not effective competition in the domestic market for power. About gas, I cannot say.

That is very evident from the most recent switching figures which show a big drop off in the numbers changing electricity supplier. It's not entirely down to inertia. Prices have moved so close together to make it, for many, not worthwhile switching if they don't want to be bothered with yearly or two yearly contracts. 

The real question is how to tackle the lack of competition. And of course that depends on what is causing it. The regulator is proposing a survey asking consumers about switching. This is my view is almost entirely a waste of time and money. The results will reveal that many don't know who all the suppliers.are. It will show they are are not aware of the different prices on offer and the savings they could make. I suspect they will be in the dark about how easy it is to switch. But what they know or do not know is immaterial. There are not, in my view, sufficiently attractive bargains out there to induce big numbers to change assuming as I say they don't want to chop and change every year or so. Switching for many won't be worth the bother.

The study will also ask whether vertical integration - suppliers and generators being owned by the same company - militates against competition. It will also enquire into possible barriers to entry. 

But to me the most fascinating  issue being explored  is whether there is tacit co-ordination in the market. That's where companies, without any actual agreement which would be illegal, do not try to grab share from each other by vigorously competing on price but perhaps broadly follow the dominant firm on charges. It works against the interests of customers in an obvious way. For example a firm may be able to cut its tariff but doesn't because it's aware its competitors won't cut either.

At this point we have no grounds for alleging tacit co-ordination. What's more I am sure the market participants would reject such a claim. But even if the enquiry were to uncover some evidence pointing in that direction, it would be very hard to prove a case. In any case what could you do about it? 

We will see what this investigation produces but I remain to be convinced it will throw up many solutions. 



 

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