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The role of demand-side remedies in driving effective competition

When consumers are engaged in a dynamic market environment they play a key role in driving companies to provide the right products at competitive prices

However, in many markets consumers appear to have low satisfaction, but they remain relatively inactive (eg they don’t switch provider, or continue to pay for a sub-optimal product). Competition authorities and regulators have tried a number of tools and prompts, known as ‘demand-side remedies’, to improve engagement in these poorly performing markets and thus improve competition.

In this report, we look at the evidence on which demand-side remedies have worked, which ones haven’t and what we can learn.

Supplying more information can help to increase consumer engagement, but we found that in many cases it’s not enough. While it can be beneficial for consumer confidence and for driving up quality (eg the requirement for a warning on storecards with an APR above 25% led to a dramatic reduction in the number of such cards), it can also have no significant impact (eg personalised interest-rate information in cash ISA statements appears to have actually reduced awareness of overall interest rates).

Demand-side remedies have the potential to make things worse, and so regulators should take testing and evaluating them seriously, and carefully consider packages of remedies. We recognise that this has cost and resource implications, which could mean that fewer remedies will be imposed, but this is a necessary trade-off, given the potential harm and wasted resources that can be caused by ineffective remedies.

See our full report:

The role of demand-side remedies in driving effective competition 664 Kb