David Stallibrass | Director, Services and Public Markets UCL / HKU Conference | March 2011 Credence goods – regulation and competition

Dominance? My job Protectionism? Mitigated by regulation Mitigated by brand power A credence spectrum Credence good Experience good Vitamins BarristersEducation Medical advice Home repairs Medical procedures Primarily a consumer problem: Asymmetric information Audit

Political economy Usually current professionals/firms Self-regulation is the norm Who judges service quality? Current consumers Often organised in voice groups Who is affected by low service? Firms and professionals who dont exist yet Their consumers, who also dont exist Who is harmed by high regulation? Role of competition authority to represent those who do not exist yet

Three examples Were good regulators, our exams are tough: Id not pass them if I took them now. Grandfathering in insolvency Our objective is to raise standards, not decrease costs. Opportunity cost in health Its harder to become a barrister than a solicitor...but their customers are more sophisticated Entry into the barrister profession Focus of professional bodies is often on high entry barriers and raising standards exacerbates competition problem

Consumers help each other to choose service provider right for them Firms and professionals have incentive and knowledge to improve their offering Information revolution Alternative approach: mitigate underlying information asymmetry by actively supporting transparency and consumer feedback 1: Open up performance and complaints data 2: Commit not to make defamation claims 3: Challenge firms and professionals to compete on quality and know their customer Often resisted by professional bodies evidence of losing their focus?

Conclusion Credence goods pose a consumer problem The competition problem comes from correcting regulation Political economy leads to excessive regulation Can use internet and consumer feedback to address underlying problem Challenge is on regulators and professionals to embrace consumer power