The FSA has published its latest Occasional Paper entitled The costs and benefits of regulation in a market with consumer confusion (the Paper).  

The Paper models theoretically the effect of regulation on a market where consumers are confused about prices. The theory suggests three things:  

  • Where entry to the market is very costly, regulation may improve consumer welfare, but in general the effect of regulation is ambiguous.
  • Where firms can freely enter the market, the costs of regulation tend to exceed the benefits in the long run.
  • It is in the interests of consumers for regulators to raise revenues using levies that are equal per firm rather than proportional to firm output.  

View The costs and benefits of regulation in a market with consumer confusion, (PDF 331KB), 7 May 2009