Consumers and Competition: making policies that work together

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Consumers and Competitionmaking policies that
work together

• Michael Jenkin
• Consumer Affairs, Industry Canada
• Louise Sylvan
• ACCC

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Interface - Basics

• Example 1 Misleading conduct laws
• Protects consumers (in the cp part of our laws)
  AND
• Protects competition (opportunity to compete on a
  fair basis)

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Interfaces - Basics

• Example 2 Cartel (anti-trust) laws
• Protects the market for competitive conduct
• Protects consumers results in better value
  (prices/quality)

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Interfaces - Advanced
Consumers benefit from competition Consumers
drive competition
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Consumers drive competition

Active Economy
Active Consumers
Competitive economy
Consumers exercising choice
Vigorous competition
Innovation, price competition
Productivity economic gains
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Interfaces - Advanced

• Studies of how and why markets work well

Supply Side conditions for
competition Structure Market concentration Barrie
rs to entry Collusive behaviour Abuse of market
power Bundling Exclusive dealing Natural
monopoly Import competition Countervailing
power
Demand Side driving competition Information
asymmetry
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Is the market sound? Are consumers enjoying
the benefits of a competitive market?
DRAFT CHECKLIST AND TOOLKIT Market Analysis by
Competition and Consumer Protection Regulators
TOOLS
Structural competition laws -eg.
divestiture, ownership laws, price controls
CHECKS

• Industry Structure
• -natural monopoly
• barriers to entry
• etc

Behavioural competition laws rules -eg.
prohibitions on collusion, price
maintenance, etc -eg. prohibition on abuse of
dominant position (eg 07/2006 EC
decision against Microsoft regarding
interoperability with Windows pcs
-eg. leniency programs Mandated (or voluntary)
industry codes of conduct -eg.
franchising code
COMPETITION (Supply-side)

• Firm Behaviour
• Collusion
• Resale Price Maintenance
• Misuse of market power
• etc

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Informational Instruments (laws and other
reducing mis-selling and/or reducing search and
switch costs) -misleading conduct laws
-disclosures (mandated and voluntary)
-provision of comparative information by
independent body or required of providers
-calculators (online interactive tool for
selecting complicated products) -labelling
-etc

• Information Failure
• -misleading conduct
• complexity and bundling
• -credence goods
• lemons
• -etc

Other Instruments (including redress) -small
claims tribunals/courts -complaints systems
-statutory/industry ombudsman schemes
-mandated standards (eg pesticide residue
limits, electrical safety laws, retail scanner
accuracy code ) -banning unfair terms in
contracts
CONSUMER(Demand side)

• Consumer Behaviour
• (costly biases see
• descriptive text)
• -choice overload
• -endowment
• -defaults
• -hyperbolic discounting
• -framing
• -biases related to risk
• -over confidence
• fairness
• Etc

• Behavioural Instruments
• (see descriptive text)
• resetting defaults
• reframing
• cooling off periods
• general debiasing
• self-binding contracts
• production transparency (fairness)

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Decision Tree Demand-Side Market Analysis by
Consumer Protection Regulators
Is the market sound? Are consumers enjoying the
benefits of a competitive market?
TOOLS
Informational Instruments
CHECKS
Are benefits of intervention likely to outweigh
the costs of intervening to empower or protect
Consumers?
Is there information failure?
Yes
Other Instruments
CONSUMER(Demand side)
Yes
Are there behavioural biases affecting
consumer decision-making and outcomes?
No
Behavioural Instruments
Are costs falling on vulnerable or
disadvantaged groups?
Yes
No
NFA
No
Yes
YES
POLICY RESPONSE for improving market for
consumers
POLICY RESPONSE for compensation or protection
NFA no further action
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OECD Toolkit Consumer Protection and Consumer
Empowerment Strategies

• II Analysing the Market
• III Tools available
• IV Which tools for which problem?
• V Making decisions

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Demand-side Policy

• HOW DO CONSUMERS ACTIVATE MARKETS?
• WHEN DO CONSUMERS SUFFER DETRIMENT?
• Standard consumer (demand side) policies
• Education and information
• Extending consumer (demand side) policies
• Findings of behavioural economics

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Framing
Our decisions are influenced by the frame
92 fat free
Contains 8 fat
OR
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Consumer situations
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Consumer situations questions of cross-subsidy
and vulnerability
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Consumer situations questions of cross-subsidy
and vulnerability
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Consumer situationsquestions of cross-subsidy
and vulnerability
Minimum policy requirement how to protect
interests of three categories without imposing
significant costs on disciplined and
sophisticated consumer asymmetric paternalism.
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Basing policy on real (empirical) evidence of
peoples behaviour BETTER PUBLIC POLICY