About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

14 Competititon L.J. 141 (2015)
Behavioural Economics in Competition Policy Enforcement for Financial Product Markets

handle is hein.journals/comptnlj14 and id is 145 raw text is: 141 Behavioural economics in competition policy enforcement for financial product markets Bruce Lyons and Nicola Mazzarottol Introduction Behavioural economics (BE) has become a buzzword in UK policy circles. BE is about how individuals often make choices that are apparently not entirely rational in the sense that they do not maximise their utility. The positive implications of BE have been developed in academic research over many decades, but its potential to improve regulation was popularised by Thaler and Sunstein in their 2008 book called Nudge.2 They argue that much could be achieved by changing the way choices are presented to individuals ('choice architecture') and that this is an attractive form of 'soft paternalism' that does not impede the liberty of individuals to make the choices they want. While this is a controversial view to some, it proved attractive to politicians especially in the heat of the financial crisis and the shadow that recession has cast over the market system. BE reached UK public attention in 2010 with the creation of the '10 Downing Street Behavioural Insights Team', widely known as the Nudge Unit, which aimed to use the insights of BE and psychology to improve government policy and services. This paper focuses on the relevance of BE to competition and competition policy enforcement. Many of the academic insights of BE had long been noticed less formally by marketing executives, and business strategies have developed to exploit the cracks in rational choice. For some years, consumer protection work and market investigations by the UK Office of Fair Trading (OFT) and Competition Commission (CC) recognised this, but not in the explicit context of BE. However, the UK Competition and Markets Authority (CMA) and Financial Conduct Authority (FCA) have recently become much more focused on the explicit use of BE, particularly in relation to financial product markets. Indeed, the UK regulators lead the world in new applications of BE to regulation and competition policy. This is substantially related to the UK's distinctive markets regime which encourages intervention in markets which are not working well because of features that have an 'adverse effect on competition'. Certain aspects of consumer behaviour, and possibly also of the behaviour of firms, can constitute such a 'feature'. It is possible that other aspects of competition policy, in particular the abuse of dominance, could also be subjected to the lens of BE (eg the presentation of results by a dominant search engine), but the explicit application of BE to Art 102 TFEU/Chapter II CA98 has not yet arisen. The rest of this article is organised as follows. In the next section, we summarise the current views of the CMA and FCA. The third section provides more detail on what distinguishes BE from standard economics and the fourth section explains why it is often thought to be 1 Professor Bruce Lyons is Professor of Economics and Deputy Director, Centre for Competition Policy, University of East Anglia and Dr Nicola Mazzarotto is Partner, Head of Competition Economics, KPMG LLP. The authors would like to thank Adrien Cervera-Jackson for comments and excellent research assistance. The authors bear sole responsibility for any errors. This article represents the views of the author only and does not necessarily represent the views or professional advice of KPMG LLP or the views of KPMG LLP's clients. 2 Richard Thaler and Cass Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (Yale University Press, 2008).

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most