Last week, the Government asked the Competition and Markets Authority (CMA) to report on whether UK markets are becoming less competitive. Recent studies have pointed to this in the US and, to a lesser extent, in the EU and UK. The Government and the CMA have both said that measuring competition is hard. But, it might be even harder to decide what to do when the answer comes in. If the CMA finds that competition has become weaker, there is unlikely to be a quick off-the-shelf solution.
Tougher enforcement by the CMA will be a tempting response. But, each industry or market that has consolidated into a smaller number of suppliers will have its own drivers and these will vary significantly from market to market. Take health and care, for example. Consolidation is being driven by: (i) healthcare professionals (e.g. vets, dentists, GPs) being less interested in owning their practice; (ii) founder-owners of social care businesses selling as they head for retirement; (iii) tighter regulatory standards increasing costs such that smaller firms are exiting (e.g. secure mental health); and (iv) private equity backed roll-ups in most segments.
Putting to one side whether this consolidation is actually reducing competition, it can be seen that underlying drivers for consolidation in health and care are very different to the experience of, say, digital markets where concerns are focused on a few dominant firms. Tougher enforcement by the CMA might only have a very marginal effect on addressing the underlying causes of weaker competition.
Boosting competition in markets where it is weak may involve reforming regulatory regimes to reduce barriers to entry by new firms, improving information for consumers, or making it easier for customers to switch between suppliers.
The CMA’s market study regime provides a vehicle for addressing these kinds of issues. It can investigate markets where competition is not working well and impose reforms directly and/or make recommendations to government. So, part of the answer to weaker competition in UK markets could be more market studies to identify reforms that boost competition.
But, before starting down this path, it is worth reflecting on whether the overall public policy goal is actually stronger competition, or whether stronger competition is simply an intermediate step to achieving something else, namely increased productivity. Comments by CMA Chairman, Lord Tyrie, indicate that productivity indeed may be the main target. If this is the case, then perhaps the market study lens should be more firmly focused on productivity. This would then allow these studies to consider all of the underlying impacts on productivity, including – but not only – competition.
Australia’s Productivity Commission is a model for this approach. It carries out public inquiries and research studies, as requested by the Government, and provides independent, high quality advice aimed at increasing industry productivity and improving economic, social and environmental outcomes. It has an excellent reputation within the Australian policy-making system.
Establishing the UK’s own system for reviewing industries, policies and regulatory arrangements from a productivity perspective, building on the market study approach used by the CMA (and the very similar public inquiry approach of Australia’s Productivity Commission), could be a significant step in addressing the UK’s productivity challenge.
Moreover, following Brexit, there is a clear need for high quality, independent analysis and advice on the impact of decisions about whether to continue to conform with, or diverge from, EU law and regulation. These issues will often be complex and contested, but their importance cannot be underestimated if the UK is to realise the opportunities created by Brexit.
Measuring competition, as the CMA has said, is hard. But the effort of doing so will only be worthwhile if the Government can do something about the answer.