A sound basis now exists for consideration of consumer issues arising in remote communities

The Office of Fair Trading (OFT), the UK authority for competition and consumer protection, has experience of a wide range of issues arising in markets serving remote communities, but the engagement has tended to be occasional and fragmented.

We know that such small markets have distinctive features, often with limited competition, which contribute to making consumers vulnerable in particular ways. The advent of new technologies, particularly the internet, has the potential to transform opportunities through access to wider choice and more competitive prices. But the impact of change may be ambiguous, with winners and losers among both consumers and local suppliers.

To develop an overview of the dynamics of remote markets and to consider the most effective application of our tools, the OFT issued a call in February for evidence in relation to markets in remote communities.

This approach has provided an opportunity for people and businesses located in, and serving, remote communities to bring to our attention directly their experiences, concerns and potential solutions. We received 500 responses from individuals, public bodies, elected representatives, companies and charities ranging across a wide spectrum of issues. We also held discussions in Shetland, Highland, Northumberland, County Tyrone, Gwynedd, Bridgend and Devon.

Not all concerns are unique to small markets (in particular, concerns about the impacts of supermarkets on local shops, or high prices) but the effects are felt differently there and the available solutions may be specific.

The most frequently mentioned issues were:

• High prices in local stores and national chains, which are not always explained by features of distance or small customer base, and lack transparency;
• High fuel prices, especially relative to more metropolitan areas;
• Concerns over digital connectivity, focused on slow internet speeds and weak or non-existent mobile phone coverage in some areas;
• Poor service and high charges for delivery, especially to the Highlands and Islands of Scotland;
• Limited or expensive public transport services, in particular buses and ferries.

Each of these issues is significant on its own but their collective effects on the price and choice of goods and services is much greater. Road fuel prices and internet connection especially underpin the opportunities for other markets to work well.

Our analysis of the information submitted has been at two levels. First we considered the factors at work in individual sectors, identifying where and why distortions in markets arise, and how the effects can be compounded. In this stage we drew on research and analysis developed across the UK and internationally.

The second stage of reflection has focused on the roles of OFT and of other partners, considering how our tools may most effectively be applied, and whether or where they may have limited application in the context of small markets.

We concluded that:

• Weak economies of scale play a central role, especially in retail. This is likely to be a more significant effect than distance;
• In certain key markets, weak competition is a highly significant factor – and some businesses enjoy a market position that is a quasi monopoly;
• The invigorating effect of the internet on choice, prices and quality is currently constrained by limitations of connections and take up and by issues with delivery;
• Competition in some markets has often been short lived, with uneven benefits in terms of winners and losers. For example, a low-cost competitor establishing at a distance benefits some customers but disproportionately disadvantages less mobile consumers.

We recognised the significance of links between these markets and observed that in remote communities, changes in one market can rapidly affect the functioning of another for better or worse.

The interdependence of markets makes joined-up policy and a holistic approach to problem solving essential.

Comprehensive strategies drawing together the interventions and initiatives of many actors are likely to deliver the most sustainable solutions. A partnership that involves local with national players, such as Citizens Advice Bureaux with local authority trading standards and OFT working together to resolve an issue such as limited delivery services, demonstrates the potential to channel the full range of diverse experience and powers.

The report identifies a range of actions that can be taken by individual consumers, communities, businesses, government and the OFT. For example:

• Consumers, by knowing their rights, shopping around and being aware that where they shop may have local consequences;
• Consumers can be powerful, especially where they act together and combine the effects of their buying power, for example through collective buying groups. They may also develop cooperation across the community leading to management or ownership of key local assets, introducing new business models which may be more sustainable in small markets;
• Businesses, through greater transparency about the costs of doing business in remote communities may give rise to new ideas about how supply may be organised to suppliers’ and consumers’ mutual benefit;
• Government, through investment in infrastructure, procurement, promoting local enterprise and other direct interventions through subsidies and taxation. Policies on issues as diverse as tax, telecoms, energy and transport all have a bearing on the challenges confronted by remote communities. Rural proofing of individual policy areas is also deployed to ensure that the interests of rural communities are taken into account in each separate policy area. Further overview of the connections between markets themselves can complement and strengthen this coordinated approach.
• OFT, through investigation and enforcement of the law, providing advice and guidance and supporting the education of businesses and consumers on their obligations and rights;
• Even simple measures, such as explaining how economies of scale affect local supply, can be instructive and a better flow of information between suppliers and consumers can even give rise to new ideas about how supply may be organised to suppliers’ and consumers’ mutual benefit.

From this call for evidence, we have a sound basis for our future consideration of the issues arising for remote communities in relation to all our competition and consumer protection functions.

In light of these explanations, we look forward to receiving the sort of information on price and choice that will enable OFT to contribute further to making markets work well in remote communities.

The OFT has a range of enforcement powers under different statutes to address competition concerns in markets and to protect consumers.

Examples of actions we are taking and recent projects of particular relevance to remote communities include:

• Advice on price differentials in the supply of road fuel to the Scottish Islands;
• Publication of guidance on cooperation agreements in farming and potential further guidance to businesses and advisers on competition law on certain rural issues;
• Partnership with Highland Council Trading Standards on compliance with consumer protection law relating to delivery;
• New published material relating to remote delivery in the OFT information hub on Distance Selling Regulations;
• Merger references in fuel retail, and ongoing consideration of mergers among supermarkets and bus companies;
• Consumer protection enforcement work in the heating oil and LPG sectors;
• Consideration of a study by the Council of the Isles of Scilly on transport;
• Discussion with Defra, the devolved administrations and economic development agencies about price and choice in remote communities.