The coronavirus crisis is likely to leave consumers more vulnerable to overcharging in the years ahead, with the first signs of a decrease in competition between companies already visible, the Competition and Markets Authority warned on Monday.
In a new report on the state of UK competition, the markets watchdog noted that there had been a decrease in the pressure on companies to keep prices low compared with 20 years ago, something that also occurred during the 2008-09 financial crisis.
The competition authority’s concern is that the current Covid-19 recession will again see significant business failures once government support is withdrawn, limiting competition in the UK.
Mike Walker, chief economic adviser at the CMA, said the results of the analysis suggested a “need for vigilance” by the authorities “to ensure competition is not weakened because of the effects of coronavirus”.
Competition pressures fell sharply around the 2008-09 recession and failed to recover fully over the past decade. The degree of business concentration — the combined market share of the 10 largest companies in each sector — rose in many industries, most notably in finance and insurance.
Average mark-ups and profitability have grown among the most profitable tenth of companies, which enjoyed the least competitive pressure over the past 20 years. CMA officials also found there was less churn in companies — creation and liquidation — in this group.
The watchdog found that customers had been less willing to shop around during the pandemic, easing competitive pressures on some companies. It also found that UK consumers reported significantly greater problems with service sector companies than those living in EU countries.
These findings will feed into concerns about “rip-off” Britain and companies — especially banks, telecoms groups and insurers — exploiting the loyalty of customers. UK consumers are more willing to switch providers than on average across Europe, but switching rates are lower among poorer and older people.
Andrew Tyrie, former CMA chairman who left the watchdog in September, said: “The CMA now needs to transform this important first step into a core working tool for selecting its projects, informing government policy and explaining what it does to the wider public.”
Coronavirus business update
How is coronavirus taking its toll on markets, business, and our everyday lives and workplaces? Stay briefed with our coronavirus newsletter.
Lawyers said the findings were likely to reinforce the watchdog’s view that more intervention was needed to prevent anti-competitive behaviour.
Simon Pritchard, competition partner at Linklaters, said: “The findings of the CMA are broadly consistent with academic studies of the US economy. These have influenced the CMA policy view that competition law and merger control have been too lenient in the past and that intervention needs to be dialled up. This, of course, is before any economic impact of Brexit on top of Covid.”
The watchdog said its high-level report was “not a substitute for the CMA’s work in market studies and market investigations . . . nor is it our intention . . . to conduct a ‘market study’ of the whole economy.”
Nelson Jung, competition partner at law firm Clifford Chance, said: “This might inform at a high level the CMA’s future enforcement agenda, but it doesn’t replace a market study or in-depth analysis of competitive dynamics in relevant product markets.”
Latest coronavirus news
Follow FT's live coverage and analysis of the global pandemic and the rapidly evolving economic crisis here.
He added that the report suggested the CMA was prepared to take imports into account to a greater extent when evaluating concentration in UK markets. This could have an impact on merger reviews or alter the way in which a company’s market dominance could be assessed in antitrust cases.
The watchdog’s findings add to its recent work to tackle profiteering and unfair refund policies. This year CMA has taken holiday companies to task for failing to repay cancelled bookings in full; written to 277 traders that it believed overcharged consumers; and opened probes into four pharmacies and convenience stores relating to excessive prices for hand sanitiser.
The CMA is collaborating with the government on the launch of a new technology regulator with an enforceable code of conduct to clamp down on the dominance of internet giants including Facebook and Google, and its report cited the importance of work on digital markets.
Get alerts on UK business & economy when a new story is published