Industries With Changed Contestability

Contestability[1] a brief overview of industries with recently changing contestability

Industry

Making it more contestable

Making it less contestable

RETAIL BANKING

IT based platforms and internet / app banking (reducing fixed costs)

Challenger banks both conventional (Metro Bank) and digital (Monzo / Revolut / Starling Bank)

Competition Policy: TSB sold off from Lloyds Bank

Traditional retailers eg MS partnering with banks to offer financial services

Regulation and scrutiny increasingly onerous (the PRA)

Capital requirements under Basel III are substantial

Low interest rates make it less attractive as profits are harder to make

Brand loyalty and inertia hard to change

Building a brand and a high-street presence is still costly

TELECOMS (airtime)

Deregulation to encourage new market entrants is ongoing

Sharing of infrastructure

OFCOM forcing BT to allow others better access to the Open Reach fibre optic spine

Brand loyalty

Quad play offers from incumbents (phone/broadband/TV/landline

Contractual obligations prevent switching easily

High sunk costs to build brand / tech infrastructure

Difficulty in interpreting tariff variations and offers

BT Openreach ownership of the fibre optic backbone to much of UK broadband may result in preferential access to BT

CAR MANUFACTURERS

Tech based innovators: Tesla and SMART

Pooling of resources / facilities / expertise across platforms as costs are so high

Niche players apparent

Car production still represents very high costs (plant / tech)

Brand loyalty

IPR: patents in place

Large scale recent mergers (Fiat Chrysler with Peugeot Citroen Talbot Oct 2019) evidence difficulty of staying small

AIRLINES

EU Open Skies policy allows carriers to fly between other member states

Low cost finance and leasing of aircraft / 2^nd hand aircraft

Use of lesser known, low cost, airports as a hub from which to operate

IT platforms: no need for a retail presence and no 3^rd party commissions to pay (eg travel agents)

Joint ventures (code shares) give incumbents a greater choice of routes

Brand loyalty

Regulations / Health and Safety requirements are strict/expensive

Main airport runway take-off and landing slots are very limited and very expensive (if they become available)

Econs of scale of large players

SUPERMARKETS

Discounters arrival (Lidl Aldi) and significant market share built

Niche players (Bailey Sage / Planet Organic etc) find a gap in the market

Ecommerce / online reduces the need for expensive retail presence

Cost and difficulty in accessing land / planning permission

Land banking by major players to prevent new entrants

Brand loyalties apparent

Traditional retailers also effective online retailers

[1] A contestable market is one in which there is a credible threat of new market entrants (barriers to entry and sunk costs are key to levels of contestability)