Eh?

The phenomenon we see is called "Price Stickiness" and is a sign of market forces working perfectly properly. This phenomenon occurs because:

• The products, in this case electricity, gas and petroleum derivatives, are commodities (i.e. their value is the same regardless of vendor). This means that the only real means of differentiation is price.
• The market is an oligopoly i.e. there are few competitors. This allows competitors to monitor each others prices and, especially in commodity markets, usually serves to minimise price difference within the market
• Most of the competitors are large, cash-rich multi-nationals. This means that any one company is unlikely to adopt a predatory pricing policy.

Prices increase with increases in costs and taxes precisely to protect the Companies' profit margins. However, once those costs or taxes decrease, there is little or no pressure to reduce prices without a dramatic shift in the market - such as a new competitor, introduction of new processes by a single competitor or a large competitor trying to avoid bankruptcy by reducing prices.

Without altering the number or size of competitors, there is little that anybody can do to remedy the price rises.

It is unlikely any of those things are going to happen. There's no incentive to introduce new processes - or even if you do, there's no incentive to pass saving due to them on to consumers - new competitors adopt the very profitable practices of existing market members and it's quite hard to go bankrupt if you can increase your profit margin by a factor of 10 in a couple of years.

So in this case free market economics is no help at all, so expanding the market by adding new members is no help at all (from the consumer's perspective).

The point is we have a government office that is supposed to ensure that competition and the market DO work in favour of the consumer/population as a whole but they have singularly failed to do so. Without regulation, market members will try to reduce competition (or, more accurately, the effect of competition) to maximise their profits. That is what has happened in this case.

Jon

Your analysis factors out market share, something that you assume (with no evidence supplied) would be freely handed to a new competitor. Apparently these companies are all as little piggies at a trough, and we are to take it that when the 7th piggy comes, the existing 6 will simply move up and make room. This is not how capitalism works (let alone cartels and/or pigs). In real life a certain amount shoving is to be expected.

I wasn't assuming it would be given but I was assuming new entrants would have to gain some market share in a relatively short term to survive. If you try to enter a market and manage to gain little or no market share, you don't tend to stick around for very long. A new entrant will either gain some market share or disappear. So the possibly market states you would end up with are either a wider market with more distributed market share, or exactly the same situation as before the new entrant appeared.

You could say I was assuming a new entrant would either shove their way in, or get shoved the hell back out again. The question is, is price reduction the only method of 'shoving'? In fact, a smart company might attempt that initially but given we know consumers are relatively reluctant to change suppliers (to their own detriment, certainly). I doubt any profit-orientated company would maintain low prices for long once they had managed to capture some market share. My opinion is you're going to grab all the switchers you're likely to get quite quickly, at which point you have to start ramping prices back up to get your profits up to the same level as the competition. If you don't do that, you'll probably find your share price falling, at which point you'll be vulnerable to a takeover by one of your competitors, at which point we're back to square one.

It's possibly a question of what the stable state in the system is - perhaps it is the case that the stable state is for all competitors to have roughly equal prices, and any significant price cut is self-defeating. Thing is, I don't see anyone actually trying to find that out.

Jon

I would suggest that consistently and significantly undercutting your rivals over the longer term would gain consistently increasing market share. There may only be half a dozen people in Britain who spend their time neurotically switching suppliers every quarter, but if you are always the cheapest you will inevitably keep poaching end users, and none of your existing customers would be likely to switch.

But the point is moot, if we have a big scandal about it when they make £125 per customer per year, there is no room for that unless you can also buy gas much much cheaper than they can. And as that won't happen, the rest of this discussion is without merit.

God knows I'm no communist, but I really don't think anyone should be turning a profit on any utilities.

As previously said, this is just Cameron trooting out the crowd-pleaser lines.

It's no surprise people are working out ways to remove the dye from red diesel, or are running their diesel engines on vegetable oil - I was behind a car the other day, and I could tell it was running on veg oil; it stank like a chip shop.

There will be a new surge in those dodgy blackbox electricity meter scamming devices, no doubt.


The Tories privatised gas supply in the eighties, and electric supply in the early nineties. Then New Labour carried the torch.

Re-nationalise them and run not for profit, sure, I'm in; providing they can make it work. Though, I sincerely doubt they would provide cheaper fuel to the consumer - government bloat, incompetence and inefficiencies would probably mean we'd pay more.

+1

There are times when I feel that such companies are see selling fuel as a necessary inconvenience of making the shareholders rich.

It's lucky that none of us goes to work in order to get paid. None of us consider things like how much our mortgages cost before we sign a contract to sell our time and effort for a certain sum of cash per hour. I wouldn't want to be a greedy hypocrite when I complained about those companies' expectations of selling a product for more than it costs the dirty chiseling gits.

Fuel's slightly different as the government is mostly responsible for the price through their tax. As for the other utilities, I wouldn't expect a private company to not turn a profit, I was trying to say that they shouldn't have been privatised in the first place. Unfortunately, they won't be able to get the cat back in the bag now.