Confusing Two Separate Issues And Tbus Drawing The Wrong Conclusion

Energy, cellular phone, wide band and insurance companies offer clients discounts and overcharge continuing customers. Some people waste hours each year by switching to a different company; and the ongoing companies then have the added hassle of closing old and starting new accounts. This isn’t proper price competition and will not make the companies/the economy better, it wastes a load of your time just. Energy companies in particular enjoy generally a monopoly-cartel position and overcharge.

Problem a. is solved by banning new customer discounts i.e. planning on companies to offer the same price to new and continuing customers. This seems fair enough to me. Whichever companies have the best price/service shall gain market share naturally, as it should be. Problem b. is easily fixed with a cost cap.

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It’s simple enough to set the price tag on electricity, gas, or drinking water so that providers make a reasonable return, and the original privatization was done on this basis. The most effective companies would be the most profitable still. I don’t observe how this pertains to mobile phones, broadband, or insurance, that is proper competition IMHO. Even if you’re a savvy customer who remember to switch insurance and energy providers every year and cancel your cellular phone agreement once you’ve paid off the handset, it’s a near-certainty that you have family members and friends who aren’t. To numerous people, it’s an excessive amount of a hassle to change, and the gains are uncertain to bother checking too.

This practice seems such as a rip-off, and that was the inspiration behind the power price cap proposed by Ed Miliband and applied by the May federal government in the beginning of this calendar year. No, that’s complicated issues a. As critics of the policy predicted, the energy price cover downwards is now being ratcheted, so that increasingly more customers will be captured in it and the purchase price discounts that energy companies can provide will become smaller and smaller.

In telecoms, Ofcom has just reached an agreement with the majority of the mobile operators to curb commitment penalty pricing in cellular phone contracts. This might sound like a good thing, but the trouble with price caps and contract rules is that customer switching is good for efficiency overall. Customer switching forces companies to contend with one another and look for ways of doing business more cheaply. Diminishing the rewards for switching means that fewer people will be willing to shop around, which weakens the motivation these businesses have to boost.

Even if local electricity prices were fixed at a even price, companies would still have every motivation to generate electricity/supply gas as cheaply and effectively as possible. Contract regulations just means no new customer discount rates/loyalty penalty. This reduces the amount of entirely artificial and unnecessary switching, but there would be the motivation to switch to a cheaper/better company still.

The overall competitive pressure would concentrate on price/service and not on pricing/marketing gimmicks. The existing regulatory approach attempts to protect non-switchers by harming switchers. That’s a useless end, making markets affected by it sclerotic, competitive, and less innovative overtime. Neither plan a. nor plan b. They are neutral entirely. A better approach might be to make switching easier, or completely automatic even.