June 16, 2019

Foggy Markets

Share Button

It is always interesting when similar things seem to be happening in different parts of the economics jungle, especially if there may be similar things driving those behaviours in many cases.

We are used to the idea that technology from push buttons to price comparison sites are helping make things simpler in many cases. So why are there many areas of markets which remain stubbornly complex?  I have come across some quite separate cases of this in the last few days and it could be worthwhile seeing if there are any connections between them.

The first was an article in the FT (23rd October) by Lucy Warwick-Ching which quoted Adair Turner, chairman of the UK Financial Services Authority as saying that the complexity of financial products as well as gaps in knowledge between sales people and consumers had led to two decades of “large-scale customer detriment” in the UK,

The second was an article by Tim Harford (8th October) who asked, are we living in a “confusopoly”? That is when it is difficult to figure out whether it’s cheaper to use one phone company’s tariff or another’s.   He also cites Chris Huhne, the UK energy secretary, who fears a “confusopoly” in complex energy prices (foggy pricing), leading to switching costs with consumers being uncertain about whether they would be better off if they switch suppliers.

Form 1040, 2005, page 2

Image via Wikipedia

And the third was an article in the Telegraph (23rd October) by Jon Swaine about a Republican candidate for US president and his proposals to simplify the US tax system. While the proposal was controversial, it could be expected to get support from many Americans, who (the Telegraph  noted) spent a combined 6.1 billion hours grappling with the code last year and which runs to a combined total of 3.8 million words – almost five times as many as the Bible.

So who would be against simplification? Well the Telegraph noted for one thing it would face “the lobbying power of the financial advice industry built around the current tax code’s complexity”.

So next time you get frustrated by something that should be simple and obey the acronym KISS – “Keep it Simple, Stupid”, just remember that for some there could be reason to keep to KICS -“Keep it Complex, Seller”.