Economic research

Below are details of reports recently published under the OFT's ongoing programme of economic research. Further current and completed research is available, listed through the links at the bottom of the page.

Research reports can also be accessed through the economic research publications page.

Most recent economic research

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What does Behavioural Economics mean for Competition Policy?

This paper was written by Matthew Bennett, John Fingleton, Amelia Fletcher, Liz Hurley and David Ruck of the Office of Fair Trading (OFT). The OFT has been deepening its understanding of the implications of Behavioural Economics to its work and, as part of this, set up a behavioural economics unit at the end of 2008. Behavioural Economics has obvious relevance to the OFT's consumer protection mission but does it have any implications to competition policy? This papers looks at this question with the aim of promoting debate and deepening understanding in economics. It forms a companion paper to the paper the OFT part funded from Professor Mark Armstrong and Steffen Huck of University College London which you can find below.

Download the report (pdf 344kb)

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Minority interests in competitors

This report, by DotEcon, looks at where competitors take minority interests in other competitors in situations which fall outside the scope of the UK Merger Control regime. The aim of this report is to further our understanding of the potential competitive effects from firms taking minority interest positions in competitors. Four different categories of minority interests in competitors were looked at:

• Minority share ownerships
• Interlocking directorships
• Loans between competitors
• Contract for differences (derivative contracts)

This report examines the potential impact on competition from these types of minority interests through:

• Lessening the incentives on the owning firm to compete with its rival (unilateral effects). 
• Increasing the incentives and ability on all firms operating within the market to jointly compete less (co-ordinated effects).
• Uniquely for contract for differences, this can enhance the ability of firms to exclude competitors.

The report finds that all these types of activities can impact on competition and discusses the circumstances when these theories are more or less likely. The report places these in the context of the potential for efficiencies (and thus benefits to consumers) to also be generated.

This report is intended to provoke discussion in a very important and interesting area. Read the full findings (pdf 1.43Mb).

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Behavioural Economics as Applied to Firms: A Primer

This is the latest in our series of economic discussion papers which are designed to promote debate and deepen understanding in the economics of both competition and consumer enforcement and policy.

This paper is the latest in our economic discussion series and was part funded by the Office of Fair Trading (OFT) from Professor Mark Armstrong and Steffen Huck of University College London. As part of our capacity building we have set up a behavioural economics unit and have been conducting experimental analysis and examining consumer behaviour through a behavioural economics lens. This paper explores another area of behavioural economics - how it applies to firms. This is an extremely interesting and thought provoking area and a topic which has potential relevance to our overall mission. The paper looks at how behavioural economics may inform understanding of the ability to sustain collusion as well as explaining behaviour by firms such as imitative behaviour, concerns for relative profit, venegful behaviour and satisfying profits rather than maximising profits.

This paper is a valuable contribution to this ongoing discussion and is available. Download report (618kb).

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UK penalty regime

This is part of our series of economic discussion papers which are designed to promote debate and deepen understanding in the economics of both competition and consumer enforcement and policy.

This research report, by London Economics, complements our earlier research by Deloitte on the deterrence effect of the OFT. [see note 1] The Deloitte report examined the deterrence effect of OFT decisions from the viewpoint of firm executives and their advisors and highlighted the importance of personal sanctions. This new report looks at the wider context, and considers how our overall penalty regime compares to an 'optimal' regime. The report informs this question by analysing the academic literature and providing a comparison of the UK with international peers in both the tools used and the fine levels imposed.

Download the report: An assessment of discretionary penalties regimes (pdf 1.4MB)

This research sheds some light on two interesting questions that have been discussed both in and outside of the OFT. First, whether the OFT is setting its fines at too high a level. Second, whether either large or small firms are disproportionately penalised due to their size.

Whilst the report can never provide definitive answers it does suggest that, if anything, OFT fines are relatively low. Indeed, OFT fines are found to be around 65 to 75 per cent lower than cartel fines in Europe. It also finds that fines do not seem to be biased by firm size. Of course in individual cases individual circumstances apply but on average that is what the report is telling us.

The report also emphasises that fines are not the sole way of achieving deterrence. Other policies, such as leniency, personal sanctions and settlements, are important ingredients in any toolkit. In considering these, the report tells us that the overall penalty toolkit for the OFT is good, with recourse to fines and personal sanctions backed by a strong leniency policy. In this respect the OFT has recently consulted on its Competition Disqualification Order (CDOs) guidance which raises the possibility of greater use of CDOs to achieve greater deterrence. [see note 2]

We continue to welcome debate and contributions in this important area.

1. See The deterrent effect of competition enforcement by the OFT
2. See Competition Disqualification Orders paragraph 3.5

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Economics at the OFT

Economics is a core part of the work of the OFT in respect of UK competition, regulation and consumer policy issues. The OFT employs over 70 economists who play an important role in competition, regulation and consumer casework. The OFT also maintains a core policy team headed by a chief economist.

In order to address some of the key issues facing UK competition and consumer policy, the OFT has an ongoing programme of economic research. Partly this is carried out through the commissioning of studies and partly through internal staff work. The intention is that, where possible, research findings should be made available to a wider audience of practitioners both for information and as a basis for discussion.

If you have any suggestions for future research topics on all aspects of UK competition and consumer policy please email econ.research@oft.gsi.gov.uk.

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