The role of consumers in competition and competition policy

Abstract

This paper develops the idea that consumers' behaviour matters significantly from the viewpoint of industry performance. This is examined through some theoretical propositions, but then at greater length by means of some case study examples. These examples demonstrate how, even in potentially competitive industries, reluctance on the part of consumers to search or to switch suppliers can lead to a sub-competitive outcome. The significance of non-traditional competition policy remedies in changing the outcome is drawn out.A paper prepared for a plenary session at the EARIE meeting in Trinity College,

Anchoring in Economics: On Frey and Gallus on the Aggregation of Behavioural Anomalies

“…Matters are also complicated by the possibility that, if regulatory intervention is judged to be necessary to protect consumers, suppliers may then set out to find other, still-unregulated ways of exploiting sources of predictable irrationality, leading to further responses from their competitors (see Waterson, 2003).…”

Price dispersion, chain heterogeneity, and search in online grocery markets

“…Quantifying search costs is a relevant question from the perspective of competition policy. As Waterson (2003) shows, traditional policies that fail to incorporate search costs will likely be less effective than other policies at enhancing competition. In fact, consumer information about prices is a necessary condition for markets to be truly competitive.…”

Renaissance in Behavioral Economics

“…Waterson (2003) exemplifies the former view, whereas the latter is the subject of major papers by lawyers Kysar (1999a, 1999b), who hypothesize that the tighter that competition becomes between firms, the more they will find it necessary to try to manipulate consumer behaviour in order to win viable numbers of customers from rivals.…”