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The challenge of removing a mistaken price cap

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  • Stephen Littlechild

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.

Suggested Citation

  • Stephen Littlechild, 2021. "The challenge of removing a mistaken price cap," Economic Affairs, Wiley Blackwell, vol. 41(3), pages 391-415, October.
    • Handle: RePEc:bla:ecaffa:v:41:y:2021:i:3:p:391-415
    DOI: 10.1111/ecaf.12498
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    References listed on IDEAS

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    1. Xiaoping He & David Reiner, 2018. "Consumer Engagement in Energy Markets: The Role of Information and Knowledge," Working Papers EPRG 1835, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
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