Monday, March 21, 2011

Caveat emptor

It's striking that the energy regulator, Ofgem, is set to introduce simpler tariffs for fuel prices because competition in the supply of fuel fails to deliver value for consumers (whilst the firms rake in excess profits)(

This should give pause for thought to the residue of Blairite detritus clogging up the Labour Party - never mind the Thatcherites now running the country.

Those who believe that competition in the delivery of public services can raise quality need to consider how it is that the market for energy fails to deliver for consumers.

After all, a unit of energy is - in principle - interchangeable with any other, its one of the simplest of commodities for a consumer to understand.

Yet, given an oligopolistic market structure, the profit motive dictates product differentiation to enable non-price competition.

If you look at markets which already exist, for private education or private healthcare for example, you see a similar market structure which will tend to produce similar outcomes.

The theoretical efficacy of the market as a mechanism for resource allocation (the idea underpinning belief in competition from Thatcher, via Blair, to Cameron and Lansley) depends upon informed consumers maximising value for money in a competitive marketplace.

If it hasn't worked for gas and electricity it certainly won't work for schools and hospitals! See you in London on Saturday to defend the public services we still have.

Sent using BlackBerry® from Orange

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