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When competition in a market is weak, price controls can help to protect consumers from the risk that companies might take advantage of their position to set excessive prices. However, price controls can also stifle innovation. To work well they depend on the regulator being able to set price limits at the right level. Ofcom, Ofgem and Postcomm have statutory objectives requiring them to protect consumers through the introduction of competition, where appropriate. Between 2002 and 2006, each removed retail price controls from, respectively, fixed line telephone provision, gas and electricity supply, and Special Delivery (Next Day) postal services for business account users. In each case, the regulator felt that the market was sufficiently well developed for consumers to be protected by competition.
Once price controls have been removed, regulators rely on consumers to switch suppliers, thereby rewarding companies who offer good service and competitive prices, and punishing the inefficient. For this to work, consumers need to have good information about different suppliers, be able to switch supplier easily, have sufficient confidence in the market to believe that changing supplier can make a difference, and to be able to obtain redress where a company behaves anti-competitively. But regulators also need to make sure that competition is working well and that vulnerable consumers are protected, especially at a time of large increases in energy prices, and telecoms prices above those of many countries.
On the basis of a Report by the Comptroller and Auditor General,[1] we examined the regulators' decision to remove price controls, the benefits of this decision to different groups of consumers, the challenges of regulating these markets and the success with which the regulators met these challenges.
Within hours of our hearing on 14 May, Postcomm published new information directly relevant to our questioning, without having mentioned in its evidence that it was going to. We therefore recalled Postcomm for a further evidence session on 30 June to explain why it had withheld this information.
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