Research and analysis

Markets that work for all - helping vulnerable consumers: CMA symposium summary

Updated 13 November 2018

Summary of symposium held on 24 July 2018

On 24 July 2018, the Competition and Markets Authority (CMA) held a symposium focused on the challenges facing vulnerable consumers and the potential solutions to these challenges. The symposium was part of the CMA’s work on consumer vulnerability.

The symposium comprised five sessions:

(a) An introductory session, including a speech by the Chairman of the CMA, Lord Andrew Tyrie and the CMA in conversation with Professor Richard Thaler, followed by an audience Q&A.

(b) A panel session, followed by audience Q&A, focused on the challenges for vulnerable consumers in regulated markets and how they could be addressed.

(c) A panel session, followed by audience Q&A, focused on the challenges and opportunities for vulnerable consumers in digital markets.

(d) A panel session, followed by audience Q&A, focused on wider issues including the relationship between competition policy and the political economy.

(e) Closing remarks by the CMA.

Panel participants included Dr David Halpern, Chief Executive, Behavioural Insights Team; Dermot Nolan, Chief Executive, Ofgem; James Plunkett, Executive Director of Advice & Advocacy, Citizens Advice; Mary Starks, Chief Economist, FCA. Professor Ariel Ezrachi, University of Oxford; Munesh Mahtani, Senior Competition Counsel, Google; Caroline Normand, Director of Policy, Which?; Selina Chadha, Director of Consumer Policy, Ofcom; Professor Sir Tim Besley, LSE; Professor Julia Black, LSE; Judge Paul Nihoul, General Court; and Lord Gus O’Donnell, non-Executive Chairman, Frontier Economics.

Other contributors included Tim Jarvis, Director, Consumer and Competition Policy Directorate, BEIS and the following from the CMA: Dr Andrea Coscelli, Chief Executive; Professor Philip Marsden, Senior Director; Daniel Gordon, Senior Director Markets; Professor Amelia Fletcher, Non-Executive Director; and Martin Coleman, Non-Executive Director.

Representatives of government departments, regulators, consumer groups, charities, think tanks, economic consultancies, law firms, trade associations, business and academia attended the symposium (see the final page of this summary for the full list of organisations). The panel sessions and audience Q&As were held under Chatham House rules.

The remainder of this summary provides a high-level summary of each session of the symposium.

Introductory session

CMA welcome

The CMA made some brief welcoming remarks that set the context for the symposium - a key part of the CMA’s programme of work on vulnerable consumers. This work was focusing on learning more about how people’s circumstances can affect their ability to engage in markets and get a fair deal, and what the CMA can do to help. The work has included a series of roundtable discussions with stakeholders and also involved research, including into measuring the extent to which those on low incomes pay more for the same goods and services than those on higher incomes across different markets (often known as the ‘poverty premium’). The programme will inform future CMA case selection, its approach to analysis and its development of remedies.

BEIS opening remarks

BEIS highlighted the importance of vulnerable consumers to the Government. Vulnerable consumers and the outcomes they experience were central to the recent Modernising Consumer Markets Green Paper and draft Strategic Steer for the CMA. When vulnerable people were on the worst deals this was of particular concern for the Government and suggested the way a market was working required close examination. BEIS said there should be ongoing dialogue between government, regulators and competition authorities on these issues. To facilitate this dialogue for economically regulated markets the Government is creating a Consumer Forum. BEIS has also launched a Smart Data review to assess the potential for data portability to help consumers (in particular the least engaged) get better deals, building on the CMA’s Open Banking remedies and energy midata.

Speech by Lord Andrew Tyrie, Chairman, CMA

Lord Andrew Tyrie, Chairman of the CMA, gave a speech on the importance of helping vulnerable consumers. He gave some initial impressions of his first few weeks at the CMA, outlined the recent history and development of the UK’s economic and competition policy-making framework, and highlighted some recent changes, notably growth in technology and digital markets, that could be creating opportunities for companies to rip people off. He then set out how the CMA could respond to these issues.

In relation to the CMA’s role, Lord Tyrie said:

“Companies and traders across the UK need to know that if they’re ripping people off, and exploiting the vulnerable, the CMA may be round to see them. It has already been accepted, in principle, that the CMA’s powers need to be bolstered, including giving us the power to fine firms if they break consumer protection law. And if it turns out that we still don’t have all the powers we need, we will ask for them. All options are on the table. That includes more vigorous enforcement, tough market wide intervention and legislative change. Staying where we are is not an option. As part of a re-examination of the CMA’s legislative framework, I have asked for further work to be done on how the regime could be strengthened better to protect the vulnerable.”

Professor Richard Thaler in conversation with the CMA

The CMA interviewed Professor Richard Thaler, the most recent recipient of the Nobel prize for economics. Professor Richard Thaler has pioneered the use of ‘nudges’ to influence how people behave - the idea that the choice architecture (or how choices are presented) can be arranged in a certain way to prompt people to act in a particular way. The interview focused on the role of ‘nudges’ in relation to vulnerable consumers.

Some of the key points made during the interview are set out below:

(a) Professor Thaler said his favourite example of a ‘nudge’ is the auto-enrolment default of people being opted into a workplace pension scheme (NEST pensions). While many ‘nudges’ have been introduced in different policy contexts across the world such as in education and health, there has been less attention paid to the role of ‘nudges’ in consumer markets.

(b) Consumer vulnerability is likely to be more acute in markets where purchases are infrequent and complex. The hardest decisions for people to make are those which involve cognitively difficult tasks and self-control problems.

(c) Nudges can help vulnerable consumers by making things easy. GPS (Google maps) is a good example of a nudge. It doesn’t require you to follow the directions provided but it is very helpful if you do. Providing choice engines is not enough to ensure that consumers engage. It’s also important to think about defaults. Todd Rogers’ paper on defaults is useful in this context. It can be hard to figure out the default but that should not stop consideration of it.

(d) ‘Sludge’ (the ability of firms to distort and exploit consumer behaviour for their own ends) is a critical issue. An example of ‘sludge’ can be requiring customers to subscribe to access services and then making it difficult for them to exit from the subscription. In some instances, choice engines (e.g. price comparison websites) can be ‘sludge emission engines’. There is a need to regulate choice engines.

(e) Randomised Controlled Trials (RCTs) are the gold standard for testing potential nudges but they’re not the right tool for testing everything. There are natural experiments too. Economists are increasingly designing and using natural experiments through their econometric strategies. In the UK, the leading body for ‘nudges’, the Behavioural Insights Team (BIT), is now eight years old so it has learned a lot about what works including in respect of defaults. Text messages are particularly effective in ‘nudging’ people.

(f) Consumers who are not engaged in digital markets should not necessarily be a huge concern. The number of people without access to mobile phones is shrinking. The reach of the internet is vast.

(g) If Professor Thaler was to revisit his 1986 paper with Knetsch and Kahneman on ‘Fairness as a Constraint on Profit Seeking’, which focused on people’s perceptions of the fairness of different market practices, he would be looking at Uber and its surge pricing. The 1986 paper had included the costs for snow shovels rising the day after a blizzard as a market practice that people thought unfair. There are similarities with Uber’s surge pricing after a blizzard in New York.

(h) Many firms may choose to avoid engaging in practices that are likely to harm their reputation with consumers. They key is to encourage firms to ‘play longer games’ by internalising the long-term effects of their actions on consumers. Regulators can help in this, e.g. by publishing data on firms’ performance.

(i) In deciding which markets to look at, the CMA should consider those where there are cognitively complex issues and self-control problems for consumers.

During the plenary discussion with Professor Richard Thaler, the following issues were raised:

(a) The role of legislation in changing business behaviour and any insights from US laws (such as New York State’s price gouging law) at a time of UK legislation to cap domestic energy prices.

(b) The importance of finding out about the experiences of vulnerable consumers and asking the right questions as part of the rigorous trialling and testing of remedies.

(c) The potential of data to do good versus the challenges of data accessibility and sharing, particularly in the context of recent GDPR developments and their implications for communicating with customers via opt in rather than opt out approaches.

(d) The imbalance in resources between regulators and businesses, with the latter having massive resources to manipulate how consumers behave e.g. by making it difficult to exit paywalls/subscription services.

(e) How nudge tactics can be applied to businesses and investors to avoid ‘sludge’ and help firms focus on the longer term, as well as the role of ‘naming and shaming’ poor corporate practice as a deterrent.

Session two – vulnerable consumers in regulated markets

The CMA chaired this panel discussion with panellists asked to consider how widespread price discrimination may be across regulated markets and whether it is always a concern, (or whether it’s particularly a concern where it affects vulnerable consumers). Specifically, panellists were asked to consider price discrimination experienced by longstanding customers (sometimes termed as the ‘loyalty penalty’) and whether there is evidence for the ‘poverty premium’ (the idea that consumers on lower incomes may pay higher prices for the same goods and services as consumers on higher incomes in certain markets). Also, whether these issues were more or less prevalent in regulated than non-regulated markets.

The following issues were covered during the panel discussion:

• There is increasing recognition by regulators of the need to consider issues of equity/distributive fairness alongside procedural fairness and economic efficiency when looking at price discrimination.
• The FCA recently published a research note that sets out a framework for identifying distributive fairness issues in price discrimination in financial services, which identifies six questions for consideration. These relate to: the nature, and extent of the harm resulting from the discrimination; the number and nature of consumers being harmed; the nature of the discrimination itself and how transparent it is by firms; whether the discrimination relates to an ‘essential’ service/product; and societal perceptions/acceptance of the discrimination.
• Differential pricing has been an area of concern in some markets, such as energy, particularly where the nature of the good being purchased is essentially homogenous, such that there are no differences in quality to justify price differences.
• Societal perceptions are important and should factor in to a regulator’s understanding of price discrimination and the extent to which it may be considered fair or unfair. This can also relate to how transparent or visible the price discrimination is, or the harm resulting from the discrimination.
• Three main ‘buckets’ or types of issue relating to price discrimination in regulated markets were suggested.
  • The first of these is the poverty premium, which has been established within the literature as a cross-market issue. The causes of poverty premia are diverse and vary in nature across markets so it may not be helpful as an analytical tool to understand price discrimination.
  • The second issue, relating to longstanding customers paying more for goods/services (the loyalty penalty), raises problems in relation to fairness and can be indicative of market failure where the price differential is particularly high. It is particularly concerning where firms are pricing egregiously high or trying actively to trick/disengage consumers.
  • The third issue related to personalised pricing/price discrimination more broadly, which has been a generally accepted common practice. It was highlighted that there is potential for more sophisticated and harmful forms of price discrimination to develop from increased use of consumer data and the digitisation of markets, for example through personalised pricing strategies. It was suggested that this is an area that regulators need to consider and ‘get ahead of’, before they become more widespread.
• There is evidence of overt price discrimination in some markets, such as surge pricing with higher prices being charged at particular times of day for a service. Consumer inertia and a lack of engagement can be closely linked to the detriment felt by consumers; for example, consumers can often experience higher prices as a result of not switching and this can be a particular issue for vulnerable consumers.
• Consumer behaviour can vary significantly depending on the type, nature and volume of information they receive. The nature of defaults is also key to the success of changing consumer behaviour (e.g. opt in v opt out).

The Chair asked panellists to consider how to deliver better outcomes for consumers, especially vulnerable consumers, in regulated markets. In particular, panellists were encouraged to think about approaches that were known to be effective, and the range of possible remedies – from behavioural ‘nudges’ to more interventionist remedies. The following issues were raised in the resulting panel discussion:

• Well-designed interventionist remedies could have a strong effect in changing incentives and the market equilibrium in the interests of consumers, particularly for the vulnerable.
• Testing and trialling remedies to change the equilibrium remains important. Recent innovative examples of sending tailored letters to consumers to encourage switching between suppliers were cited, along with opt-out collective switching of customers (involving a Third Party Intermediary (TPI)).
• Regulators should consider lowering the threshold for intervention in markets where consumer inertia was being exploited. They should consider designing more interventionist remedies where the evidence suggests that consumer behaviour is not changing – even where there may be many suppliers in a market e.g. introduce targeted price caps for vulnerable consumers to address consumer inertia/disengagement.
• It was suggested that regulators should lean less heavily on information remedies and focus more on choice architecture e.g. using opt-out collective switching where consumers are defaulted onto protected tariffs after three to five years.
• It was queried whether regulators have been reluctant to intervene in regulated markets because of power asymmetries between consumers and producers/suppliers and the risk of legal appeal.
• The way that regulators consider remedies has changed over time. Historically, less intrusive remedies had been preferred and regulators had ‘worked their way up’ to more interventionist remedies. There was some acknowledgement that regulators need to get better at deciding when to intervene in a market, and to intervene more quickly. This linked to issues of trust in markets and a sense of urgency for regulators to act to address mistrust. However, learning more about the design of effective interventions, including trialling and testing remedies, remained important.

During the audience Q&A, the following points were raised:

(a) The challenges for suppliers of identifying vulnerable consumers, particularly because of the transitional nature of vulnerability e.g. firms need to ensure that employees are effectively trained on vulnerability.

(b) The importance of considering the position of small businesses, which can also be vulnerable when operating in regulated markets.

(c) Whether regulatory mandates need to be strengthened in the context of regulator ‘timidity’, as a way of enabling regulators to intervene more. Alternatively, if the main barrier for regulators intervening in markets is fear of appeal and the legal risks, then whether it would be more effective to make the nature of the appeals process more balanced.

(d) The role of regulators in taking action on price discrimination issues in regulated markets e.g. by ranking choice engines, revising incentives in the business to business market and identifying ‘safe products’ for consumers.

(e) The need to consider language e.g. the term ‘loyalty penalty’ does not accurately reflect the nature of the issue, which is centrally about consumer inertia and a customer not engaging over the longer term. By contrast, the concept of ‘loyalty’ has active and positive connotations.

Session three – vulnerable consumers in digital markets

The CMA introduced the session, explaining that the panel discussion would focus on the challenges and opportunities for consumers presented by digital technology. In the first instance, the panellists would consider consumer engagement and exclusion in digital markets and then discuss the use of consumer data. The following issues were covered during the panel discussion:

• While those who are offline are more likely to be from vulnerable groups, research has highlighted that all consumers face risks in the online environment. Issues included people not identifying online ads as ads, not checking the accuracy of online news articles and not being confident in accessing and managing their data. The complexity of services (e.g. bundling of different service components) can also lead consumers to disengage and impede their decision-making processes.
• There were some doubts that digital markets will serve the public interest without intervention because of the power of online companies and the way that innovation currently develops in the market.
• One panellist suggested that online firms prefer relatively less engaged customers and are actively seeking to undermine consumer engagement. It was suggested that consumers may accept innovation and new technology in accordance with Everett Rogers’ five ‘Stages of Change Theory’ (Knowledge, Persuasion, Decision, Implementation and Confirmation) but that online companies are using mechanisms and strategies to undermine engagement at each of these stages.
• On the demand side, recent research has suggested that while many people welcome the benefits of technology, they can have negative feelings about the collection and use of their data. Consumers can see the benefits of data but may not understand how their data is used in practice. As such, people can be worried and unsure about some aspects of data and may be more likely to disengage.
• Recent research has revealed that consumers appear more worried about data when they understand more about the digital ecosystem e.g. if they know about profiling and what may be inferred about them by online companies. Vulnerable consumers may be more likely to be concerned about data collection because of concerns that this could be shared with other providers and lead to stigmatisation. The research also showed vulnerable consumers were often quicker to feel organisations were ‘crossing a line’ in respect of collecting and sharing data.
• One panel member cautioned that the focus should not be binary - pessimism versus optimism – in relation to digital markets. There were lots of online companies that rely on engagement and trust amongst their customers to be successful. Many internet services were free to use (ad funded) so there was not the monetised exploitation of consumers. Some work has also been done to make online ads clearer with symbols, scope to change ad settings etc.
• The collection of data was already heavily regulated. This included recent GDPR developments and other data protection legislation. Digital businesses have taken steps to address users’ concerns about their data including updating privacy policies to help people understand data collection and also improving user control to enable portability of data.
• It is important not to lose sight of the benefits to consumers of using data to improve products. These included the scope for online mapping apps, online recommendations and reviews, access to greater amounts of information, more choice and the potential for more price comparisons. The data used to inform online advertising is typically user queries with ads being placed depending on the search query and not because of users’ data. Data may also be used to protect consumers against vulnerability e.g. to address malware.
• Another panellist cautioned that there were characteristics of stealth in digital markets - going way beyond what’s happening with online advertising. Some service providers are using information that is asymmetric. The consumer believes that they are seeing the entire offer in the market when going online but that is not the case. Many providers offer dynamic and personalised pricing based on a person’s data. For example, if a consumer arrives at a website directly rather than via a search engine, they may pay more than if they arrive via a search engine. This is because the provider believes the consumer using the search engine has shown awareness of other options so they are rewarded with a lower price. However, consumers are unaware of such practices. This means there is more opportunity to take advantage of them.
• Some concerns were raised about third party trackers in digital markets. These can gather information for various online applications but consumers may not know they exist. The use of third party trackers was reported to be extensive: 90% of apps give data to third party trackers. Such tracking can be far reaching; it may not only cover the users but extend to their personal contacts, their political affiliations etc.

During the audience Q&A, the following points were raised:

(a) Data is not just an issue for consumers but will increasingly change how markets operate e.g. in the insurance market, which has traditionally been built around sharing risk. Such developments reiterate the importance of thinking about the type of data that should be used and for what purpose.

(b) The overall ‘size of the prize’ in relation to digital markets is great given the potential benefits to consumers and increasing predictive power of data but there is a need for the data to be collected and used responsibly.

(c) TPIs/Digital Comparison Tools (DCTs) could play a greater role in enabling customers to get a better deal from their existing provider rather than just be used to facilitate customers switching between companies.

(d) There is an important role for regulators in promoting more competition and innovation in digital markets and not solely relying on regulation. Nevertheless, there will be some parts of the markets that do not work and/or have limited competition for vulnerable customers, given their potential to be more expensive for firms, and some regulatory action will be required.

(e) There is a case for examining whether the regulatory framework is fit for digital markets e.g. are firms engaging in practices that are technically legal but do not seem fair for consumers.

(f) While focusing on digital markets, there is also a need to remain vigilant on non-digital market developments.

Session four – Implications for the future: the relationship between competition policy and the wider political economy

The CMA chair introduced the session, explaining that the panel discussion would focus on the relationship that competition and regulatory policy should have with the wider political economy. A central question was the extent to which distributional considerations should be factored into CMA’s assessment and how competition authorities go about their work. The following themes/issues were covered in the panel discussion.

• The earlier symposium sessions had highlighted that people cared about the relationship between competition and regulatory policy and the wider political economy. There was some current mistrust in governments’ scope to deliver and widespread concerns about equity which together meant it was important for regulators to care about vulnerable consumers.
• In respect of operationalising this care about equity, James Tobin’s work, ‘On Limiting the Domain of Inequality’ (1970) might be useful as a point of reference. This work suggested societies identify areas where inequality really matters, e.g. healthcare, and focus on those areas to improve outcomes. Such an approach could be applied to digital markets - for example, if people are not connected with new technologies, they may be disadvantaged.
• If competition authorities and regulators were to do more in respect of delivering equity, there was a need to retain the basic principle of political independence for regulatory activities but this could happen as part of a wider framework. It was suggested that there was scope to learn from independent organisations that balance redistributive dimensions e.g. the National Institute for Health and Care Excellence (NICE) and the Bank of England. The redistributive role of such bodies suggests scope for the CMA to have a wider remit and set of powers relating to equity.
• It is important to establish the right targets for organisations. It is possible for organisations to be independent of politics (e.g. the Bank of England), with accountability residing with Parliament which set the overall outcomes. However, this is only successful if organisations have the right remits. It was suggested that the CMA’s mandate could be adjusted to take account of vulnerable consumers more specifically e.g. its objective could be ‘the CMA must promote competition for the benefit of consumers, particularly vulnerable consumers’. Vulnerable consumers could be a clear CMA target and there could be scope to measure progress against this target.
• There is little likelihood of new legislation in relation to competition policy and structures at present but there would be a time when a new vision and accompanying legislation would be desired. At this point, it could be possible to set a new agenda that focused on vulnerable consumers.
• Some caution was expressed about the role of regulators in relation to the wider political economy. It was important to consider the purpose of regulation and not lose sight of the fact that regulators already care about vulnerable consumers. There was a long history of regulation that has sought to protect vulnerable consumers. Regulators were also focused on risk.
• Regulators can gain their legitimacy through hard work and being careful about the use of interventions. There is a vast academic literature on regulators building legitimacy. While certain regulators ‘borrow’ legitimacy from the state, other non-state regulators will develop legitimacy through other means. These include through a commitment to a clear set of values, a democratic structure, quasi-legal processes, and clear measurement of their work.
• It was suggested that, in terms of next steps, regulators should focus on three things: i) ensuring cognitive diversity in their workforces (they needed a range of experts including anthropologists, sociologists and psychologists and not just economists and lawyers); ii) talking to each other in broader groupings with a focus on learning from disasters e.g. the collapse of Enron; and iii) speaking to vulnerable consumers directly and not just their representative groups.
• Competition and regulatory bodies need to stay connected to consumers. Regulations should be understandable and competition authorities should promote consumers being able to make choices.
• Legitimacy is not the exclusive preserve of democratically-elected politicians. Competition authorities, regulators and the courts also have legitimacy as they have a key role in enforcing laws that have been enacted by previous democratically-elected politicians. The rule of law remains important. Some aspects of this legitimacy such as judicial review should be more fully embraced by competition bodies: they should not shy away from complex issues because of the fear of judicial review. While competition bodies rely on objective (‘scientific’) evidence to reach their decisions, such objectivity may not always be possible in practice.

During the audience Q&A, the following issues were raised:

(a) The extent to which there was a strong understanding of how institutions achieve legitimacy.

(b) The potential lack of incentives on staff in public sector regulatory and competition bodies to help consumers who are being ripped off by companies.

(c) The possibility that many companies are not seeking to rip off vulnerable consumers but rather do not know how to help vulnerable consumers.

Closing remarks

The CMA made some brief closing remarks about the symposium. The event reflected the CMA’s keenness to engage with a range of people and organisations in its work. The discussions had demonstrated a shift in how regulators think and act, and this shift was continuing with Brexit. The CMA was seeking to generate good outcomes for consumers through its daily decision-making on cases. The CMA was also seeking these through its wider discussions with Parliament about its powers, remit (especially post Brexit), and the broader system required to ensure good outcomes for consumers.

Organisations which attended the symposium:

• Advertising Standards Authority
• Age UK
• Banking Standards Board
• Behavioural Insights Team
• Department for Business, Energy and Industrial Strategy (BEIS)
• Civil Aviation Authority (CAA)
• Centrica
• Citizens Advice
• Consumer Council for Water
• Department for Digital, Culture, Media and Sport (DCMS)
• Energy UK
• Fair By Design
• Financial Conduct Authority (FCA)
• Federation of Small Businesses
• Financial Services Consumer Panel
• Freshfields
• Frontier Economics
• General Court of the European Union
• Google
• HM Treasury
• International Longevity Centre
• John Fingleton Associates
• Kirkland & Ellis
• Legal Services Consumer Panel
• London School of Economics (LSE)
• Macmillan Cancer Support
• McFarlanes
• Money Advice Service
• Money Advice Trust
• Money and Mental Health Policy Institute
• MoneySavingExpert.com
• National Infrastructure Commission
• Northern Ireland Housing Executive
• No.10
• Octopus Energy
• Ofcom
• Office for Students
• Ofgem
• Ofwat
• Oxera
• Respublica
• SCOPE
• Slaughter & May
• Social Market Foundation
• Stepchange
• The Young Foundation
• Toynbee Hall
• Trading Standards Wales
• University of East Anglia (UEA)
• UK Finance
• UK Regulators Network (UKRN)
• University of Chicago Booth School of Business
• University of Leicester
• University of Oxford
• Warwick Business School
• We are just
• Which?