This SMF report presents new estimates of industry concentration in consumer markets, exploring the extent to which markets are dominated by a small number of large businesses. It also assesses whether consumer outcomes are improving and deteriorating in markets where there have been notable changes in industry concentration.
The briefing note updates figures for market concentration originally presented in our 2017 report, Concentration, not Competition, and discusses the extent to which consumer markets have changed between 2016 and 2018.
The key findings of our analysis are:
- Of the eight consumer markets examined in our analysis, six are estimated to be moderately or highly concentrated in 2018, on the broad HHI measure of industry concentration. The mobile and broadband markets remain “highly concentrated”, while the electricity, gas, groceries and personal current account markets remain “moderately concentrated”.
The mortgage and car markets remain unconcentrated and, compared with the other consumer markets considered, much less dominated by a small number of large firms. For example, Ford, with the highest car market share, accounted for just 11% of the new car market at the start of 2018. This compares with the 36% market share of BT-EE in the broadband market and the 30% market share of British Gas in the gas market.
- Most of the markets examined in our analysis – cars, groceries, electricity, gas and mortgages, have become less concentrated since 2016. There have been particularly notable declines in market concentration in the electricity and gas markets as an increasing proportion of customers have switched away from the large “Big Six” incumbents to newer “challenger” companies.
- In gas, the consumer market share of the largest four suppliers (the CR4 ratio) has fallen from 68% to 61% between 2016 and 2018, as consumers have switched towards smaller challenger brands in the market. In the electricity market, the CR4 ratio has fallen sharply from 65% to 58%.
- Telecoms has, unlike the other categories examined in this analysis, become even more concentrated since 2016, with the merger of BT and EE increasing concentration. The merged entity of BT and EE accounts for about 36% of the UK broadband market and 28% of the market for mobile contracts in 2018.
- Policymakers appear to be ignoring the high levels of customer inertia and consumer detriment in the telecommunications market. Mobile network switching rates currently stood at just 9% per year in 2017, down from 13% in 2007. Switching rates for fixed-line telephone contracts are just 5% per year, and for pay TV just 10% per year.
Research by Citizens Advice shows a loyalty penalty of £264 per year for mobile phone contracts and £113 per year for broadband contracts – both higher than the £110 estimated for energy. The loyalty penalty is the cost of being a long-standing customer, compared to a new customer receiving the same product or service.
- It is crucial that the policymaking debate in the UK starts to focus on telecoms as well as energy. While policymakers, businesses and those in the third sector have made large strides to make the energy market more competitive and to reduce levels of consumer inertia, the telecommunications market has been largely ignored in recent discussions about the state of UK consumer markets.