Effective competition helps make sure shoppers and households get
a fair deal when buying goods and services. This is especially
important at a time when the UK is recovering from the COVID-19
pandemic and facing a rising cost of living.
Recognising the importance of competition, the Chancellor and the
Business Secretary asked the Competition and Markets
Authority (CMA) to assess the state of competition in the UK
economy.
This is the second report of its kind that the CMA has produced.
Building on its first report, the CMA
has improved the techniques it uses to measure indicators of
competition like market concentration, firms’ profitability and
markups, and market entry and exit levels.
Key findings include:
- The level to which markets are dominated by a limited number
of companies - their concentration - remains higher than it was
before the financial crisis of 2008.
- Concentration is higher when ‘common ownership’, where
competing firms are owned by the same companies, is factored in
but lower when accounting for international trade.
- Lower income households are more likely to consume goods and
services produced in more concentrated markets. This is because a
higher proportion of their income is spent on essential services,
like gas and water, which tend to be produced by a limited number
of companies.
- Average markups - the amount added to the cost price of goods
to cover overheads and profit - have increased since 2008, from
just over 20% to about 35%, with the increase in markup being
higher for the 10% most profitable firms.
- Evidence suggests that the largest and most profitable firms
are able to sustain their strong position for longer than they
used to, with the likelihood of the largest firms in an industry
remaining the largest firms increasing over the last 20 years.
- Digital markets have huge potential to improve our lives and
living standards and to play an important role in the
post-pandemic recovery. But to deliver those benefits, they need
to stay competitive. Weak competition in digital markets, like
search engines, mobile ecosystems and social media, risks
reducing innovation and choice, and leading to people giving up
more personal data than they would like.
In its report, the CMA also analyses surveys which asked people
about their direct experience of problems with goods and services
they purchased. The BEIS Consumer Protection
Study 2022 estimates that issues with purchased goods and
services cost UK consumers £54.2 billion in the year to April
2021, with two-fifths of issues arising from just four sectors:
renting services, vehicle maintenance and repair, second-hand
vehicles, and internet provision. Consumers reported that around
£7.7 billion of this cost (14% of the total) was caused by the
Covid-19 pandemic.
The pandemic was also felt to have played a large part in the
majority of issues people experienced with services provided by
airlines and package holidays and tours sectors.
Mike Walker, Chief Economic Adviser at the CMA, said:
Our State of Competition report shows a worrying combination of
trends. We are seeing markets getting more concentrated,
companies enjoying higher mark-ups and the biggest firms
maintaining their leading positions for longer. The fact that all
these indicators are pointing in the same direction provides a
warning sign about the state of competition in the UK.
What’s more, we’ve found that the poorest households are likely
to suffer the effects of these changes the most - at the very
time when they are already being hit by sharp rises in the cost
of essential items.
We will use our findings to direct our work to keep markets
competitive and protect consumers at this crucial time.
The CMA’s report is informed by its knowledge of markets and work
enforcing consumer and competition law. It has also included
insights of outside experts, academic advisors and other parts of
government.
For more information, and to read the report, visit the State of UK Competition
report page.
For media enquiries, contact the CMA press office on 020 3738
6460 or press@cma.gov.uk.
Notes to editors
- The CMA is extremely grateful for the assistance of Steve
Davies, professor of economics at the University of East Anglia
and Dr Anthony Savagar, associate professor in economics at the
University of Kent in advising on the report structure, reviewing
the methodology used and providing critical review of the final
report.
