FCA exploring whether 'price discrimination' fuelled by big data benefits the few over the many

In a recent speech on competition policy in financial markets, Financial Conduct Authority (FCA) director of competition Mary Starks said the FCA is concerned that elderly or vulnerable members of society are losing out because firms are deploying "price discrimination" to entice consumers that shop around.

Starks said firms are "finding new ways to price discriminate" as a result of "the arrival of big data", which is where firms use computing power, the latest software and analytics tools to process and gain insights from vast quantities of data.

However, Starks said the FCA is conscious that benefits to competition at a "macro" level might not always filter through to everyone where price discrimination is in use.

"Whereas previously the shopping around and switching activity of a small number of ‘marginal consumers’ … might keep prices down for the many, with price discrimination the returns to shopping around and switching are not necessarily shared across the whole market," Starks said.

"In financial services we sometimes talk about ‘Martin Lewis readers’ … as shorthand for those ‘marginal consumers’ who are shopping around and switching, and doing very well out of it. But rather than keeping prices down for everybody else, could they in fact be pushing them up?" she said.

Starks said it might not be realistic to expect everyone in society to shop around and switch and that the regulator is therefore seeking to understand the "distributional impacts of competition" in more detail.

"We might not worry about [the potential price increases stemming from price discrimination practices] very much if we think that everyone has it in them to be a Martin Lewis reader, and that there are rewards to the effort some people choose to make," Starks said. "We might become rather more concerned some consumers, through being vulnerable or excluded, are not able to share the fruits of competition. For example there are over 1.4m people aged 85 or over in the UK – is it realistic to expect these consumers to shop around in the same way as millennials?"

"FCA has begun to scratch the surface of this question through research on vulnerability and on access to financial services and the ageing population. But there’s a lot more work to do to understand the distributional impacts of competition, and to develop realistic expectations of what consumers can [or] ‘should’ do to protect their own interests in these markets," she said.