Empowering and Protecting Consumers in Communications Markets

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Empowering and Protecting Consumers in
Communications Markets

• Louise Sylvan
• ACCC

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Two key changes

• Technological changes in communications
• Computers and email
• Internet
• Mobile phones
• Governmental policy re-orientation

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Consumers drive competition

Active Economy
Active Consumers
Competitive economy
Consumers exercising informed choice
Vigorous competition
Innovation, price competition
Productivity economic gains
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Consumers drive competition

Active Economy
Active Consumers
Competitive economy
Consumers exercising informed choice
Vigorous competition
Innovation, price competition
Productivity economic gains
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Consumers drive competition

Active Economy
Active Consumers
Dont worry too much
Competitive economy
Vigorous competition
Innovation, price competition
Productivity economic gains
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Market Failure

• Transaction costs
• Agency problems
• Informational asymmetry

Information
Government intervention may be appropriate
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Dont worry too much
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Examining actual consumer outcomes Empirical
data
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Deregulating Electricity Markets

• Complexity (eg bundling), confusopoly
• Consumer outcomes
• 32 switched to a more expensive plan
• Only 7 gained the maximum savings from switching
• on average, consumers only achieved 23 of the
  available surplus (i.e. 77 of possible savings
  overall for that set of consumers was not
  realised)
• increase in the number of firms reduced the gains

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Deregulating Electricity Markets

• Conclusions
• decision complexity rather than conventional
  theories of rational decision making
• Better consumer pricing information was needed
  too hard to compare
• Reducing choice may sometimes increase benefit

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Choice and Information Overload
Evidence that past a level, consumers default or
choose not to choose (they choose whatever or
walk away creating dead weight loss)
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Taking out a loan

• Varying interest rates
• the lower the interest rate, the higher take up
  of the loan
• One example vs four examples of different loan
  amounts and monthly payments
• one example creates more take up of loan than
  four examples
• Smiling picture of woman, smiling picture of man

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Context (framing) Matters

• Contextual signals can matter significantly
• For men 4.5

Oooh!! That smiling guy on the letter is
offering me a loan! He looks just like
Johnny Depp!
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Powerful New Solutions?
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Powerful New Tools?Use of Behavioural Defaults

• Pennsylvania
• Auto insurance
• Option of limited right to sue
• Lower premiums
• Opt-out
• Transaction costs 0
• 75 selected full right to sue

• New Jersey
• Auto insurance
• Option of limited right to sue
• Lower premiums
• Opt-in
• Transaction costs signature
• 20 selected full right to sue

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Decision Tree Demand-Side Market Analysis by
Consumer Protection Regulators
Is the market sound? Are consumers enjoying the
benefits of a competitive market?
TOOLS
Informational Instruments
CHECKS
Are benefits of intervention likely to outweigh
the costs of intervening to empower or protect
Consumers?
Is there information failure?
Yes
Other Instruments
CONSUMER(Demand side)
Yes
Are there behavioural biases affecting
consumer decision-making and outcomes?
No
Behavioural Instruments
Are costs falling on vulnerable or
disadvantaged groups?
Yes
No
NFA
No
Yes
YES
STRATEGIES for improving market for consumers
STRATEGIES for compensation or protection
NFA no further action