Baringa demonstrates how inappropriate regulatory design can distort competition
Having a lower cost base enables an energy supplier to offer lower prices to its customers and to gain market share from less efficient suppliers. However, if the cost difference results from government policy or regulation rather than company efficiency, are consumers really made better off when the lower cost firm gains market share?
Significant differences in average cost to serve between energy suppliers can also result from suppliers having a different mix of customers, with some customers having a much higher associated cost to serve than others. With a cap on retail tariffs that does not reflect such differences, can competition still work effectively for the customers with a higher cost to serve?