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Teaching Economics

In the News

Could an energy price cap stifle competition?

Graham Watson

11th December 2017

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Using examples of unintended consequences is a great way of building evaluation. The Telegraph highlights an unintended consequence of a price cap in the energy sector: a reduction in competition.

It's interesting to note that the strapline highlights the need to keep "bills high enough to make it worthwhile for consumers to switch".

This implies that the cap needs to be set so as to allow firms to earn some form of profit - and it seems unlikely that it will be set exactly in line with what might be 'normal profit'.

Hence, this implies that the complaints of the sector about the imposition of the cap; some of them may still be making supernormal profit.

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Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to Tutor2U, reads voraciously and is interested in all aspects of Teaching and Learning.

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