Consumers and competition: delivering more effective consumer power in retail financial markets

Competition reviews of retail financial markets are frequent and commonly include recommendations designed to increase consumer shopping around and switching in order to drive competition. However, many of these markets are characterised by 'monopolistic competition' and firms use a variety of tactics to increase or maintain their market power, including product complexity, price obfuscation and price discrimination. These tactics are effective because they exploit consumers' behavioural traits, such as status quo bias, anchoring, present bias, satisficing, and more. As such, consumers are not equipped to engage actively in these markets as regulators would wish. However, digital innovation may hold the answer, if mass-market consumers delegate the tasks of shopping around and switching to automated services via computers and mobile apps. Innovation is already moving this way, but raises issues around data security, conflicts of interest and trust, which will need to be resolved