Do behavioural insights matter for competition policy?

July 2016

CPI Europe Column edited by Anna Tzanaki (Competition Policy International) & Juan Delgado (Global Economics Group) presents:

Do behavioural insights matter for competition policy? by Emanuele Ciriolo (European Commission, Joint Research Centre)

Intro by Juan Delgado (Competition Policy International)

Behavioural insights make use of behavioural economics and psychology to analyse how humans behave when adopting economic decisions. The use of behavioural insights to improve policy-making is becoming increasing popular all over the world. Pensions, taxes, unemployment, energy efficiency, adult education, charitable giving and, of course, competition policy have benefitted from the application of behavioural insights. Emanuele Ciriolo, from the European Commission Joint Research Centre, explains the role of behavioural insights to improve consumer, regulatory and competition policies.

It is traditionally assumed that a reasonable level of competition is the condition sine qua non for markets to work well, and generate the best allocation of resources. This view explicitly relies on the homo economicus postulate, that is on the idea that consumers are fully informed, utility-maximisers and intertemporally-consistent agents. If so, it is clear that consumers would play a pivotal role in the competitive process, by reacting swiftly to the best available deals, thereby exerting pressure on firms to cut prices and improve on quality. But is that a realistically co