The CMA’s Assessment of Customer Detriment in the UK Retail Energy Market

41 Pages Posted: 22 Jun 2020

See all articles by Stephen C. Littlechild

Stephen C. Littlechild

University of Cambridge - Judge Business School

Date Written: May 28, 2020

Abstract

In 2016, the UK Competition and Markets Authority (CMA) found that “weak customer response” enabled incumbent UK energy retailers to set higher and discriminatory prices to residential customers. The CMA estimated the associated higher prices constituted a customer detriment in the range £1.4 bn to £2 bn per year. Although the CMA recommended against a price cap on most domestic energy tariffs, the size of the detriment and public concern about “rip-off energy tariffs” nonetheless led the Government to impose a price cap as from January 2019. This paper examines the CMA’s calculation of customer detriment and suggests that it is inconsistent with CMA Guidelines and unprecedented with respect to its nature, magnitude and policy impact. Alternative more realistic calculations suggest that any detriment would have been nearly an order of magnitude lower, so that a price cap was inappropriate. This raises a number of questions about the CMA’s approach.

Keywords: competition, regulation, retail energy market, price caps

JEL Classification: L51, L94, L40

Suggested Citation

Littlechild, Stephen C., The CMA’s Assessment of Customer Detriment in the UK Retail Energy Market (May 28, 2020). Available at SSRN: https://ssrn.com/abstract=3612737

Stephen C. Littlechild (Contact Author)

University of Cambridge - Judge Business School ( email )

White House, The Green
Tanworth in Arden
Solihull, West Midlands, B94 5AL
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
28
Abstract Views
246
PlumX Metrics