Increasing competition by reducing competition

This is an interesting contortion the IPPR have managed to get themselves into. That head/rectum pose:

It says that leading companies lure new customers – and those who take the trouble to switch suppliers – with \”loss-leading\” offers that are paid for by stinging longer-term customers with unfairly high tariffs. The IPPR says that the result is that neighbours who use the same amount of energy pay very different sums, while the big companies maintain their position unthreatened by new entrants into the field.

Customers on a \”standard credit account\” (paying in arrears) and who are unlikely to switch tariff or supplier are most likely to be paying over the odds. More than 60% of all households have never switched their energy supplier.

IPPR tested tariffs for British Gas, EDF, E.On, Npower, Scottish Power and SSE for three different payment types, using a price comparison website for properties in London, Sheffield, Dumfries and Aberystwyth. Scottish Power was found to offer the greatest differential between its standard and cheapest tariff: £339 in Sheffield, with London second-highest with £333. The gap at Npower was up to £315 and up to £229 at E.On. British Gas, SSE and EDF had figures of up to £126, £100 and £86 respectively. The thinktank found the difference in the tariffs offered could not be justified solely by the cost of different payment methods.

So there\’s intense comptition in hte market for those new customers, for those willing to switch.

Excellent.

The solution to this is:

will increase the pressure on ministers and the energy regulator, Ofgem, to act to ensure that all customers are offered the cheapest available tariffs.

To remove the comptition!

8 comments on “Increasing competition by reducing competition

  1. The purpose of all this is the generation of noise to distract everyone from the actual culprit for high energy prices- the government and its mad Carbonophobia.

  2. The hoary old myth of competition is exposed in the latest Economist 18.ii.12 “From summit to plummet ” p66
    “Since 2000 the big five Japanese electronics firms have lost two thirds of their value .. Too many Japanes firms make similar things.No fewer than eight crank out mobile phones;more than ten make rice cookers and six make televisions.The overlap is inefficient:it duplicates reearch and development,reduces economies of scale and destroys pricing power.
    Companies often stay in markets where they cannot compete.This wastes huge amounts of capital.Rather than sticking to what they do best,they bleed their strong divisions to feed the losers.”
    Just as King Gillette,Stuart Chase and Upton Sinclair said.

  3. So, people who shop around pay less than those who cannot be a*sed.

    Therefore, as usual the state must take on the bottom-wiping duties for the latter, at the cost of the former.

    Business as usual then.

  4. @IB
    There’s always cut-price imports We’d be better in the UK with one volume car maker than none at all.
    The point is that competition is not economic magic .When firms merge they slim down all the back office overlap, proving that competition had preserved useless bureaucracy.WHen Tesco towns are from time to time considered a problem ,the invariable answer is: put in a competitor.They react by splitting the available
    spending power down the middle tacitly agreeing to take 50% each.

  5. “They react by splitting the available
    spending power down the middle tacitly agreeing to take 50% each.”

    So a lack of competition is proof that competition doesn’t work?

  6. Who said competition is “economic magic”? It’s just how the economy works, not wizardry.

    When firms merge they slim down all the back office overlap, proving that competition had preserved useless bureaucracy.

    And consumer choice is generally reduced too; the range of products on the market is smaller. So the bureacracy wasn’t “useless” at all, it was generating greater diversity of choice for consumers.

    The error is people thinking of “commodities”. Like, cars are a “commodity”. In that mental model, they’re all the same. So you only need one commodity car manufacturer making this fungible commodity, “cars”. Except they aren’t a commodity and are not fungible. Each manufacturer is producing a different range of cars; the extra administrative overhead is translating into greater choice.

    What I find odd is that so many people lapse into this line of argument who also complain about monopolies like Microsoft. We have one OS producer; why do we need any more? What a waste of progammers and office staff, over at Apple, eh?

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