The challenge of removing a mistaken price cap

Stephen Littlechild

Economic Affairs, 2021, vol. 41, issue 3, 391-415

Abstract: The UK Competition and Markets Authority in 2016 calculated a detriment of £1.4 billion–2 billion in Great Britain's retail energy market, attributed to weak customer response. The government in 2019 imposed a tariff cap until competition is effective. I argue that the cap was a mistake: there was no such detriment and there are valid reasons for customers not changing supplier. The market was not previously uncompetitive and inefficient as suggested. The cap has rendered the sector loss‐making and led to supplier exit. The assessments of effective competition by the Office of Gas and Electricity Markets have been arbitrary and implausible. Some alternative ways ahead are noted, but latest government policy invokes behavioural economics to propose even greater intervention. A postscript discusses dramatic recent developments.

Date: 2021
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