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Quick Revision Blasts on Market Structures

Geoff Riley

4th May 2023

In these three quick revision blasts, we looked at sticky prices in the petrol retail oligopoly; contestability in parcel couriers and the controversial issue of price walking by insurance companies who until recently were charging existing customers higher premiums than for new buyers - even though they had the same risk profile.

UK insurance market

In 2021, the UK’s Financial Conduct Authority implemented a package of remedies to improve competition and protect home and motor insurance customers from loyalty penalties. This includes new rules so that renewal quotes for home and motor insurance consumers are not more expensive than they would be for new customers.

In 2018, 6 million loyal policy holders would have saved £1.2 billion had they paid the average price for their actual insurance risk.

Many motor insurance firms increase prices for existing customers each year at renewal – this is known as price walking. This means that consumers have to spend time shopping around and switch every year to avoid paying higher prices for being loyal.

Monopoly - Price Discrimination in Car Insurance - Quick Revision Blast

Sticky prices in the UK fuel retail market

Tesco, Sainsbury's, Morrisons and Asda, now account for the majority of fuel sold in the UK.

The emergence of the hypermarket fuel retailer is one of many changes taking place in the UK fuel retail industry, with the declining number of forecourts serving as an indicator of the changing face of fuel retail in the UK. Between 2000 and 2021, figures fell by over 36 percent.

The Competition and Markets Authority (CMA) is investigating whether petrol and diesel prices in the UK are too slow to fall when wholesale fuel costs drop. Some critics claim that fuel prices are slower to come down than when they go up and that is a form of market failure.

Oligopoly - Sticky Prices in Petrol Retailing - Quick Revision Blast

Contestability in the UK Parcel Courier Industry

The liberalisation of postal services in the UK began in the early 2000s with markets being opened up to competition. Royal Mail was subsequently privatised

In 2021, Royal Mail held the highest share in the courier market in the United Kingdom with a market share of 27 percent.

Meanwhile, Amazon Logistics and Hermes are emerging as big players in the UK parcel market.

Strong competition has contributed to falling per-parcel revenue on average for operators. Ofcom reported that in 2021 the average revenue for a parcel decreased by 9.6%, from £3.71 to £3.36.

Contestable Markets - The UK Courier Industry - Quick Revision Blast

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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