In the UK the agency responsible for promoting competition and generally getting consumers a good deal was the Office of Fair Trading, the OFT. (Written a few years ago this UK regulators have since changed). Interestingly this government agency used a concept from Scott Adams (of Dilbert fame) to illustrate a major problem in competition. What is confusopoly?
The Concept Of A Confusopoly
As the OFT said:
The term ‘confusopoly’ refers to a situation wherein firms make price structures or product attributes unnecessarily confusing making it difficult for consumers to evaluate rival offers and thereby deterring switching. As a result firms have to compete less hard on price. Mobile phone contracts, retail energy tariffs and bank accounts are frequently cited as examples of this.
OFT 2013, page 1
Lest anyone doubt that firms actively promote confusion as a tactic to reduce competition, a strategic consultancy advertised courses on how to minimize banking competition. It advocated structuring prices differently from rivals so as to make it more difficult for consumers to compare offers.
OFT 2013 page 5
Note the key point. It is just that markets are confusing. Some markets, e.g., with naturally complex changing products, can be hard to understand. The essence of a confusopoly is that firms are actively making it harder to understand the offerings.
Why Would A Firm Do This?
Confusopoly tells us how competitors can create markets that are more lucrative for firms. They do this by shortchanging consumers without the sort of overt price-fixing that we imagine when thinking of anti-competitive behavior. We all know examples of industries that may be using confusopoly to dampen competition. Do cell=phone contracts really have to be that complex? Maybe, it is fiendishly hard to separate just a naturally complicated market from a market being actively made more complicated. Still, probably the market could be easier. The logic would be that if the consumers are confused they don’t get the best deal. All consumers in the market are paying more than they would be if consumers were better informed.
It was good to see a regulator that is giving thought to preventing the deleterious impact on consumers. Well done to the OFT for using a good idea no matter where it came from.
Bringing Fun Ideas Into Business Theory
I also love the idea of bringing fun ideas into business theory. Confusopoly is a great example where a cartoonist’s idea has turned into a serious academic concept. It would probably be going too far but wouldn’t it be fun if they gave Scott Adams the Nobel Prize for Economics. I’m sure some economists are still having nightmares about a psychologist — Daniel Kahneman — getting the Nobel Prize in 2002. They would probably believe it if you ran an April Fools headline “Scott Adams gets Nobel”.
I’d personally love to get a concept out of King of The Hill to use in my research. I’ll have to watch more episodes to see what innovative management ideas I can find from Hank, Peggy or, more likely, Dale. I guess that would be the academic equivalent of finding out your holiday is tax-deductible.
For more on competition see my panda index here. For more on Scott Adams see here.
Read: Office of Fair Trading, (2013), An Introduction to Confusopoly, 14 March 2103
