Summary of the main points in the Summary Report of the Second Roundtable on Economics for Consumer
Policy hosted by the OECD Committee on Consumer Policy
Background
- Roundtables were held in October 2005 and October 2006, and a summary report was completed in July 2007.
- Academics and policy makers from OECD member countries participated in the Roundtables.
- Speakers talked about developments in economics and particularly behavioural economics and what kinds of factors influence behaviour and how to incorporate this into legislation and policy.
The first Roundtable
- acknowledged that consumers' ability to activate competition in a market should be examined in a more rigorous manner to ensure that markets operate efficiently.
- Speakers were concerned with the market failures which can occur in markets which are structurally sound on the supply side.
- They informed the CCP on developments in behavioural economics and the interface between economics and the law with a view to exploring possible implications for consumer policy.
The second Roundtable
- was again concerned with market failures in markets where competition is deemed effective.
- It considered the economic theories of information disclosure and focussed on two major industry sectors - telecommunications and financial services.
The following main points emerged from the discussions held during the second Roundtable:
- For policy purposes, the demand and supply side of markets should not be considered separately
- Competition policy, consumer policy, and social justice in markets should all work together to ensure that markets operate to deliver outcomes which are beneficial to consumers and to the economy as a whole.
- Competition policy is a means to an end, not an end in itself.
- Consumer policy should ensure that consumers gain the benefits of competition, are active participants in markets, and have reason to trust that markets can provide fair outcomes for consumers and producers.
- Regulatory interventions in markets should be researched and, once implemented, reviewed
- There should be analysis of proposed interventions (if possible using trials) and once interventions are in place, there should be an ongoing assessment to ensure interventions are working as expected. The importance of including cost-benefit analysis was also pointed out.
- Mandatory disclosure is an important policy instrument, the outcome of which policy makers can explore, based on consumer behaviour
- In certain situations, firms have an incentive to disclose information voluntarily. Mandatory disclosure may be necessary in other cases (e.g. if information disclosure is costly, or if the proportion of informed consumers is low).
- Mandatory disclosure is an important instrument in many markets, but policy makers should explore its outcome based on the direct and indirect consequences of consumer behaviour and other factors.
- Interventions in markets should take into account consumer behaviour
- Even well-informed consumers may be subject to costly biases which systematically lead them away from welfare-improving decisions. These biases should be taken into account by policy makers.
- Where possible, interventions should work with rather than against behavioural biases.
- Lessons may be drawn from the telecommunications and financial services markets
- In both markets consumers are buying complex and rapidly-changing products, and have to make decisions weighing immediate costs and benefits against longer-term costs and benefits.
- A number of behavioural biases, particularly the bias of myopia (hyperbolic discounting), may lead consumers away from making sound decisions.
- These findings have applicability in other markets with similar characteristics. In some markets (for example, credit cards), consumer biases may lead to distorted patterns of competition.
- There are warning signs when markets may be failing on the demand side
- These include a high level of consumer complaints, low or inappropriate switching behaviour, patterns of rash behaviour (particularly in financial markets), and patterns of short-sighted behaviour.
- Demand-side failure is more likely in some markets than others
- Failure is most likely to occur in markets with complex products (including supplier-induced complexity), where consumers make infrequent purchases, in markets with "intermediary" competition (for example, where commission agents are under high pressure to sell), where there are conflicting sources of information, in markets where easy entry and exit provide opportunities for fraud, and generally in markets where switching costs are high, or are perceived to be high, in relation to benefits.
- Interventions to protect those subject to costly biases should be made with care
- While protecting consumers from the consequences of costly biases that could lead to significant consumer detriment, care should be taken not to distort other consumers' decision-making. In particular, in financial and similar markets, interventions to protect undisciplined or naïve consumers should not distort the decision-making of disciplined or well-informed consumers.
- CCP forward work plan
- An informal working group of the CCP was established to elaborate further methods of analysis of demand-side market failure, and to develop a toolkit to guide policy makers.
Read more
www.oecd.org/sti/consumer-policy
Report on Second Roundtable on Economics for Consumer Policy, 25-Jul-2007
Report on a Roundtable on Demand-side Economics for Consumer Policy, 28-Apr-2006
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