Hostname: page-component-7c8c6479df-27gpq Total loading time: 0 Render date: 2024-03-29T06:04:52.142Z Has data issue: false hasContentIssue false

Disclosure as a tool for enhancing consumer engagement and competition

Published online by Cambridge University Press:  19 September 2019

AMELIA FLETCHER*
Affiliation:
University of East Anglia – Norwich Business School, Norwich, UK
*
*Correspondence to: University of East Anglia – Norwich Business School, Norwich Research Park, Norwich, Norfolk NR4 7TJ, UK. Email: amelia.fletcher@uea.ac.uk

Abstract

Finding ways to get consumers engaged in markets is a major current topic of debate. This article examines why consumer engagement is so important in driving effective competition in markets. It then considers some key categories of intervention that can enhance consumer engagement, and in particular the various roles that disclosure can play. Recent examples are provided from the UK, where many such engagement measures have been implemented. The article emphasizes the importance, when policy-makers are designing such interventions, of understanding how real consumers truly behave. It also highlights the relevance to competitive outcomes of two further concepts: relative salience and relative consumer engagement. Finally, the article draws on both the successes and the failures of past interventions to identify some lessons for policy-makers when stepping into this area.

Type
Article
Copyright
Copyright © Cambridge University Press 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Armstrong, M. and Zhou, J. (2011), ‘Paying for Prominence’, The Economic Journal, 121: F368F395.CrossRefGoogle Scholar
Bennett, M., Fletcher, A., Hurley, L. and Ruck, D. (2010), ‘What does behavioral economics mean for competition policy?’, Competition Policy International, 6(1): 111137.Google Scholar
Bertrand, M. and Morse, A. (2011), ‘Information Disclosure, Cognitive Biases, and Payday Borrowing’, Journal of Finance 66(6): 18651893.CrossRefGoogle Scholar
Bordalo, P., Gennaioli, N. and Shleifer, A. (2016), ‘Competition for Attention’, The Review of Economic Studies, 83(2): 481513.CrossRefGoogle Scholar
Cho, D., Ferreira, P. and Telang, R. (2016), ‘The Impact of Mobile Number Portability on Price, Competition and Consumer Welfare’. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2265104.Google Scholar
Competition and Markets Authority (2014a), Private Motor Insurance Market Investigation: Final Report, Para 51. Available at: https://assets.publishing.service.gov.uk/media/5421c2ade5274a1314000001/Final_report.pdf.Google Scholar
Competition and Markets Authority (2014b), Private Healthcare Market Investigation: Final Report. Available at: assets.publishing.service.gov.uk/media/533af065e5274a5660000023/Private_healthcare_main_report.pdf.Google Scholar
Competition and Markets Authority (2015), Payday lending market investigation order 2015. Available at: assets.digital.cabinet-office.gov.uk/media/55cc691e40f0b6137400001f/Payday_Lending_Market_Investigation_Order_2015.pdf.Google Scholar
Competition and Markets Authority (2016a), Retail Banking Market Investigation: Final Report. Available at: assets.publishing.service.gov.uk/media/57ac9667e5274a0f6c00007a/retail-banking-market-investigation-full-final-report.pdf.Google Scholar
Competition and Markets Authority (2016b), Energy market investigation: Final report, Para 20.24. Available at: assets.publishing.service.gov.uk/media/5773de34e5274a0da3000113/final-report-energy-market-investigation.pdf.Google Scholar
Competition and Markets Authority (2018a), Secondary ticketing sites pledge overhaul, Press Release, 25 April 2018. Available at: www.gov.uk/government/news/secondary-ticketing-sites-pledge-overhaul.Google Scholar
Competition and Markets Authority (2018b), Car hire sites to provide full costs upfront after CMA action, Press Release, 29 March 2018. www.gov.uk/government/news/car-hire-sites-to-provide-full-costs-upfront-after-cma-action.Google Scholar
Competition and Markets Authority (2018c), Designing and Testing Effective Consumer-facing Remedies - Background Note. Available at: one.oecd.org/document/DAF/COMP/WP3(2018)2/en/pdfGoogle Scholar
Competition Commission (2006b), Home Credit Market Investigation: Final Report and associated 2007 Order. Available at: www.gov.uk/cma-cases/home-credit-market-investigation-cc.Google Scholar
Deller, D., Bernal, P., Hviid, M., and Waddams Price, C. (2017), Collective Switching and Possible Uses of a Disengaged Consumer Database. Available at: http://competitionpolicy.ac.uk/documents/8158338/19064125/Collective+Switching+Report+-+August+2017.pdf.Google Scholar
Department for Business, Energy and Industrial Strategy (2018), Modernising Consumer Markets: Green Paper. Available at: www.gov.uk/government/consultations/consumer-green-paper-modernising-consumer-markets.Google Scholar
Diamond, P. A. (1971), ‘A Model of Price Adjustment,” Journal of Economic Theory, 3(2): 158–68.CrossRefGoogle Scholar
European Commission (2008), Directive 2008/48/EC on credit agreements for consumers. Available at: http://ec.europa.eu/consumers/financial_services/consumer_credit_directive/index_en.htm.Google Scholar
European Commission (2009), Commission accepts Microsoft commitments to give users browser choice – frequently asked questions. Press release, 16 December 2009. Available at: http://europa.eu/rapid/press-release_MEMO-09-558_en.htm.Google Scholar
European Commission (2015), Consumer testing study of the possible new format and content for retail disclosures of packaged retail and insurance-based investment products: Final Report by London Economics, MARKT/2014/060/G for the implementation of the Framework Contract n° EAHC-2011-CP-01. Available at: ec.europa.eu/info/sites/info/files/consumer-testing-study-2015_en.pdf.Google Scholar
Financial Conduct Authority (2013), Occasional Paper 2: Encouraging consumers to claim redress: evidence from a field trial. Available at: www.fca.org.uk/publication/occasional-papers/occasional-paper-2.pdf.Google Scholar
Financial Conduct Authority (2014), Detailed rules for the price cap on high-cost short-term credit Including feedback on CP14/10 and final rules, PS14/16. Available at: www.fca .org.uk/static/documents/policy-statements/ps14-16.pdf.Google Scholar
Financial Conduct Authority (2015a), Policy Statement PS15/27: Cash savings remedies. Available at: https://www.fca.org.uk/static/documents/policy-statements/ps15-27.pdf.Google Scholar
Financial Conduct Authority (2015b), CP15/32: Smarter Consumer Communications: Removing certain ineffective requirements in our Handbook. Available at: www.fca.org.uk/static/documents/consultation-papers/cp15-32.pdf.Google Scholar
Financial Conduct Authority (2015c), Cash Savings Remedies Consumer testing to inform the FCA's proposal for summary boxes to improve the provision of consumer information at or before the point of sale in the cash savings market: Research Report prepared by Sharron Worton and Rebecca Reynolds. Available at: www.fca.org.uk/your-fca/documents/research/cash-savings-remedies-consumer-research.Google Scholar
Financial Conduct Authority (2015d), High-Cost Short-Term Credit Price Comparison Websites: A behavioural study for the Financial Conduct Authority. Research by London Economics and YouGov, CP15/33. Available at: http://www.fca.org.uk/static/fca/documents/consultation-papers/cp-15-33-behavioural-study.pdf.Google Scholar
Financial Conduct Authority (2015e), Occasional Paper No.12: Encouraging consumers to act at renewal: evidence from field trials in the home and motor insurance markets. Available at: www.fca.org.uk/your-fca/documents/occasional-papers/occasional-paper-12.Google Scholar
Financial Conduct Authority (2015f), Occasional Paper 10: Message received? The impact of annual summaries, text alerts and mobile apps on consumer banking behaviour. Available at: www.fca.org.uk/static/documents/occasional-papers/occasional-paper-10.pdf.Google Scholar
Financial Conduct Authority (2015g), Guaranteed Asset Protection insurance: competition remedy Including feedback on CP14/29 and final rules, PS15/13. Available at: www.fca.org.uk/static/documents/policy-statements/ps15-13.pdf.Google Scholar
Financial Conduct Authority (2016a), Policy Statement PS16/15: Feedback on CP15/33, Consumer credit: proposals in response to the CMA's recommendations on high-cost short-term credit, PS16/15. Available at: https://www.fca.org.uk/static/fca/documents/policy-statements/ps16-15.pdf.Google Scholar
Financial Conduct Authority (2016b), Policy Statement PS16/21: Increasing transparency and engagement at renewal in general insurance markets – feedback on CP15/41 and final rules and guidance. Available at: www.fca.org.uk/publications/increasing-transparency-and-engagement-renewal-general-insurance-markets-ps16-21.Google Scholar
Financial Conduct Authority (2018a), FCA value measures pilot having a positive impact, Press release 1 March 2018. Available at: www.fca.org.uk/news/press-releases/fca-value-measures-pilot-having-positive-impact.Google Scholar
Financial Conduct Authority (2018b), Occasional Paper 36: Sending out an SMS: The impact of automatically enrolling consumers into overdraft alerts. Available at: www.fca.org.uk/publications/occasional-papers/occasional-paper-no-36-sending-out-sms-impact-automatically-enrolling-consumers-overdraft-alerts.Google Scholar
Financial Conduct Authority and Competition and Markets Authority (2018), Helping people get a better deal: Learning lessons about consumer facing remedies. Available at: www.gov.uk/government/publications/ukcn-consumer-remedies-project-lessons-learned-report.Google Scholar
Fletcher, A. (2016), The Role of Demand-Side Remedies in Driving Effective Competition: A Review for Which?. Available at: www.staticwhich.co.uk/documents/pdf/the-role-of-demand-side-remedies-in-driving-effective-competition-456067.pdf.Google Scholar
GfK (2014), Survey of Private Motor Insurance Policyholders: Qualitative Research Findings. Available at: https://assets.publishing.service.gov.uk/media/53a9492840f0b610b4000001/GfK_Report_Qualitative_Research_Findings.pdf.Google Scholar
Heidhues, P. and Koszegi, B. (2018), ‘Behavioral Industrial Organization’, CEPR Discussion Paper No. DP12988. Available at SSRN: https://ssrn.com/abstract=3198140.Google Scholar
Helfrich, M. and Herweg, F. (2017) ‘Salience in Retailing: Vertical Restraints on Internet Sales’. CESifo Working Paper Series No. 6615. Available at SSRN: https://ssrn.com/abstract=3035729.Google Scholar
HM Treasury and Department of Business, Innovation and Skills (2011), Consumer Credit and Personal Insolvency Review: Formal Response on Consumer Credit, Para 7. Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/225119/bis-11-1341-consumer-credit-and-insolvency-response-on-credit.pdf.Google Scholar
Lacko, J. M. and Pappalardo, J. K. (2004), ‘The Effect of Mortgage Broker Compensation Disclosures on Consumers and Competition: A Controlled Experiment’, Federal Trade Commission Bureau of Economics Staff Report. Available at: www.ftc.gov/sites/default/files/documents/reports/effect-mortgage-broker-compensation-disclosures-consumers-and-competition-controlled-experiment/030123mortgagefullrpt.pdf.Google Scholar
Lunn, P., Bohacek, M. and Rybicki, A. (2016), ‘An experimental investigation of personal loan choices’. Available at: https://www.esri.ie/pubs/BKMNEXT314.pdf.Google Scholar
Ofcom (2011), Automatically Renewable Contracts Decision on a General Condition to prohibit ARCs. Available at: http://stakeholders.ofcom.org.uk/binaries/consultations/arcs/statement/ARCs_statement.pdf.Google Scholar
Ofcom (2017a), Statement: Decision on reforming the switching of mobile communication services. Available at: www.ofcom.org.uk/consultations-and-statements/category-2/consumer-switching-proposals-to-reform-switching-of-mobile-communications-services.Google Scholar
Ofcom (2017b), Review of the market for standalone landline telephone services: Statement. Available at: www.ofcom.org.uk/__data/assets/pdf_file/0015/107322/standalone-landline-statement.pdf.Google Scholar
Office of Fair Trading (2002), Consumer IT Goods and Services, OFT610. Available at: webarchive.nationalarchives.gov.uk/20140525130048/ http://www.oft.gov.uk/OFTwork/markets-work/it-services.Google Scholar
Office of Fair Trading (2004), Servicing ties removed from new car warranties, Press Release 14 May 2004. Available at: http://webarchive.nationalarchives.gov.uk/20140525130048/http://www.oft.gov.uk/news-and-updates/press/2004/85-04.Google Scholar
Office of Fair Trading (2006), Evaluating the impact of the car warranties market study: Evaluation by Europe Economics, OFT852. Available at: http://webarchive.nationalarchives.gov.uk/20140402142426/http://www.oft.gov.uk/shared_oft/about_oft/oft852.pdf.Google Scholar
Office of Fair Trading (2010), The impact of price frames on consumer decision making: Research Paper by Steffan Huck and London Economics, OFT1226. Available at: webarchive.nationalarchives.gov.uk/20140402142426/ http://www.oft.gov.uk/shared_oft/economic_research/OFT1226.pdf.Google Scholar
Office of Fair Trading (2012), Payment surcharges: Response to the Which? super-complaint. Available at: http://webarchive.nationalarchives.gov.uk/20140402142426/http://www.oft.gov.uk/shared_oft/super-complaints/OFT1349resp.pdf.Google Scholar
Office of Fair Trading and Department for Business, Enterprise and Regulatory Reform (2008), Guidance on the Consumer Protection from Unfair Trading Regulations 2008. Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/284442/oft1008.pdf.Google Scholar
Ofgem (2018a), Active Choice Collective Switch Trial: Final Results. Available at: www.ofgem.gov.uk/system/files/docs/2018/11/cs_results_final_pdf_0.pdf.Google Scholar
Ofgem (2018b), Decision – Default Tariff Cap – Overview Document. Available at: www.ofgem.gov.uk/system/files/docs/2018/11/decision_-_default_tariff_cap_-_overview_document_0.pdf.Google Scholar
Persson, P. (2018), ‘Attention manipulation and information overload’, Behavioural Public Policy, 2(1): 78106.CrossRefGoogle Scholar
Shaffer, G. and Zhang, J. (2000), ‘Pay to Switch or Pay to Stay: Preference-Based Price Discrimination in Markets with Switching Costs’, Journal of Economics & Management Strategy, 9(3):397424.CrossRefGoogle Scholar
Spiegler, R. (2006), ‘Competition over agents with boundedly rational expectations,’ Theoretical Economics, Econometric Society, 1(2): 207231.Google Scholar
Which? Magazine (2016), ‘Test Lab: Which printer should you pick?,’ August: 60.Google Scholar
Wilson, C. M. (2012), ‘Market frictions: A unified model of search costs and switching costs’, European Economic Review, 56(6): 10701086.CrossRefGoogle ScholarPubMed