The CMA’s assessment of customer detriment in the UK retail energy market

Stephen Littlechild

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

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: retail energy markets; market power; efficient costs (search for similar items in EconPapers)
JEL-codes: L51 L94 L95 (search for similar items in EconPapers)
Date: 2020-06-02
New Economics Papers: this item is included in nep-com and nep-ene
Note: sl304
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The CMA’s assessment of customer detriment in the UK retail energy market (2020)
Working Paper: The CMA's assessment of customer detriment in the UK retail energy market (2020)
Working Paper: The CMA’s Assessment of Customer Detriment in the GB Retail Energy Market (2017)
Working Paper: The CMA's assessment of customer detriment in the GB retail energy market (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2051

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