When an OFT investigation identifies a serious problem in a market, it is under a duty to suggest a way in which the problem can be addressed - a remedy. The OFT continually endeavours to improve the performance of its remedies. This includes sharpening remedies in cases where consumers tend to act rationally as well as formulating more effective remedies in cases where behavioural biases are common.
Choice and competition in the delivery of public services
The OFT has awarded a contract to Frontier Economics to explore the factors that make choice and competition a more or less effective mechanism for delivering public services to users.
In recent years there has been a shift away from the more traditional way of delivering public services through the state and other government funded agencies to a more market oriented approach where users can choose from a mix of different providers and competition between providers drives improved delivery of services.
The objective of this study is to review the existing evidence on choice and competition in public service markets to understand how effective user choice has been in driving effective competition between providers. The study will aim to look at a number of examples of public service markets where choice and competition has been rolled out and will try to identify the factors that have either facilitated or limited user choice and the extent to which this has driven effective competition and improvements in the delivery of public services.
We intend to publish findings from this project in spring 2010.
For more information on this project please contact Veronica Mansilla at the Office of Fair Trading on firstname.lastname@example.org or call 0207 211 8330
The OFT has awarded a contract to London Economics in association with Steffen Huck and Brian Wallace (University College London) to carry out some experimental analysis on consumer decision making.
The research is to be underpinned by lessons from the behavioural economics literature which suggests that consumers, rather than being fully rational, might have behavioural biases (such as bounded rationality or endowment biases).
The research is to focus on consumers' decisions in response to pricing practices, which includes amongst others: time limited offers, baiting sales, and 'drip' pricing.
The experiments will thus be designed to see how and why individuals might deviate from rational predictions when faced with various pricing practices. By examining several practices the study should also offer the opportunity to compare and rank the potential impact of different pricing practices.
Finally, the design of the experiments should also generate insight into the potential for consumer learning and into the participants' experience when faced with the different pricing practices.
The applicability of behavioural economics to models of the firm
The OFT has commissioned Professor Mark Armstrong and Professor Steffen Huck (University College London) to prepare a discussion paper on the applicability of behavioural economics to models of the firm. The objective of this discussion paper is to raise the level of debate and also to pose questions and possible future research avenues for the OFT. The study will cover experimental results and insights from behavioural economics on features of the environment that are likely to foster or hinder collusion, relative to the predictions of profit-maximizing firm behaviour.Minority interests in competitors
The OFT has awarded a contract to DotEcon to explore in what circumstances partial share ownerships, interlocking directorates, loans and the use of Contract for Differences might weaken competitive rivalry.
This research will not only focus on the theoretical implications in terms of potential anti-competitive effects, but it will also shed light on the practical implications of these practices, in particular, the use of financial derivates.
The objective of this study is to provide insight on whether the actual use of these practices represents a legitimate potential anti-competitive concern.
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