Bit of a nerd thread-CMA State of UK Competition report
IMHO civil society doesn't pay enough attention to how CMA, FCA approach competition policy.
It is critical because dominant approach is hugely ineffective in key markets like financial services https://bit.ly/37Lq0Ih  [1/n]

Some v interesting thoughts in CMA's report. Approach can be effective in some markets. But, not in financial services.
Market concentration actually risen since financial crisis-despite regular attempts to get consumers to switch, enable easier market entry etc [2/n]

But, the usual competition indicators used by CMA/ FCA - levels of switching, degree of choice available, number of providers in market etc are actually largely irrelevant.
What matters is not number of providers/ products but the *consumer outcomes* produced [3/n]

Attempts to 'create the conditions' for competition to 'work its magic' have failed - and more importantly have diverted attention away from the job of *making markets work*.
Sometimes it is better to have fewer providers/ products [4/n]

And looking at indicators such as profit margins can also be irrelevant. Competition theory holds that large profit margins a sign of ineffective competition - and that low margins a sign of effective competition. That's a basic misconception of how markets function [5/n]

Eg., Theorists would say a market with lots of choice and low profit margins indication of effective competition. But, those low margins can result from firms having to deploy huge marketing spend/ commission payments to beat competition. This pushes up prices, harming consumers

Then you have markets such as asset management which have huge numbers of products/ providers which according to theory should lead to effective competition. But, margins in the sector one of highest. And there is huge value extraction [7/n]

But, perhaps the worst mistake is the CMA/ FCA's basic conception of competition. They believe that competition is about firms competing with each other to deliver value for consumers. Correct to some degree. But, v limited understanding [8/n]

The reality of competition is actually:
- consumers competing against each other (which in zero sum game means when some gain it is at expense of others)
- consumers competing against providers to extract most value from transaction (we know who wins there usually) [9/n]

Theorists would argue that it's not a zero sum game, that the magic of competition increases the overall quantum of consumer welfare - some consumers may gain more than others but even those who do less well still gain.
But, the reality is v different [10/n]

The whole point is that competition has not been effective at improving overall outcomes for consumers. Indeed, in some cases, it has been worse than a zero sum game as value has been extracted/ destroyed [11/n]

Anyway. This is all a very long way of saying that CMA/ FCA approach to competition is very flawed and can be a damaging distraction from job of making markets work thru tough regulation.
Tough regulation has driven up standards and improved outcomes [12/n]