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Is the shocking cost of directory enquiry numbers in the UK a market failure, or the economy working perfectly well?
EDIT: I know that proponents of free markets often like to blame over-regulation or government interference for perceived problems in markets, so I wonder if anyone could point to some regulation that has caused this incredible series of price hikes.
Questions about specific markets in specific countries require targeted applied research to be answered - this is the fine hour for applied microeconomics and industrial economics.
Telecommunications is a regulated market usually -and indeed the link provided by the OP quotes the industry regulator
The rising cost of directory enquiry calls to some 118 numbers is very concerning, an industry regulator has said....
...Ofcom has said it will announce details of a review of the directory services market soon...
..A spokesman for the watchdog said: "Ofcom is very concerned about the rising prices of some 118 numbers, and we are already planning to review this market to ensure prices are transparent and fair to consumers."
It appears the regulator is concerned.
When there was only one telephone service supplier, BT directory enquiries used to be free. If you did not know the number of who you wanted to call, you could not call. Once you got the number from the phone book or directory enquiries, you could make the call and would be charged for it - instant payback for the phone company.
After the telephone market was opened to competition, BT started charging for directory enquiries eventually reaching 40p per call.
After de-regulation of directory enquiries in 2003, hundreds of suppliers have sprung up. The cheapest is currently 40p per minute plus your phone provider's Access Charge. The most expensive is £15.98 per call, plus £7.99 per minute after 60 seconds, plus your phone provider's Access Charge.
Prices for a number of 118 services have risen substantially over the years.
118 118 prices have risen sharply in recent years...
1 July 2015 - £5.74 per call, plus £2.99 per minute after 60 seconds, plus your phone provider's Access Charge.
1 March 2016 - £6.98 per call, plus £3.49 per minute after 60 seconds, plus your phone provider's Access Charge.
1 May 2017 - £8.98 per call, plus £4.49 per minute after 60 seconds, plus your phone provider's Access Charge.
It is no surprise that the most well-known services such as 118118 and 118500 are the most heavily advertised.
It should come as no surprise that the most heavily advertised services are among the most expensive. All that advertising has to be paid for somehow.
The cheapest services have no budget for advertising. In order to advertise, they would have to increase their prices.
What is needed is a third-party to rate and review all of the suppliers and their services and for this information to be freely available and easily accessible.
This seems very clearly not to be a result of any market failure. It seems like more of a problem of demographic. Older people who are less competent seem to be the primary market. This isn't the fault of the businesses running these services. Should prices be more clear? Probably. If there is anything misleading about the prices, it could be considered fraud, which is an externality and can cause system inefficiencies. However, its difficult to call fraud a market failure since fraud is not legal. If there is anything fraudulent about the system, it would be more accurately considered a government failure (where the failure is a failure of the justice system to hold fraudsters accountable).
The 3 types of market failures are:
But high prices for phone call services in a competitive market don't fall under any of these categories. Its silly to blame the free market for incompetent customers.
