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'Motor insurance providers in Ireland targeted in anti-cartel inquiry.' (Source: The Irish Times, July 2017) (i) Explain the likely effects on consumers if collusion (e.g - Leaving Cert Economics - Question c - 2018
Question c
'Motor insurance providers in Ireland targeted in anti-cartel inquiry.' (Source: The Irish Times, July 2017) (i) Explain the likely effects on consumers if coll... show full transcript
Worked Solution & Example Answer:'Motor insurance providers in Ireland targeted in anti-cartel inquiry.' (Source: The Irish Times, July 2017) (i) Explain the likely effects on consumers if collusion (e.g - Leaving Cert Economics - Question c - 2018
Step 1
Explain the likely effects on consumers if collusion (e.g. cartel agreement) existed in the motor insurance industry.
Answer
If collusion existed in the motor insurance industry, consumers would likely face several negative effects:
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Higher / Less Competitive Prices: Colluding firms would agree not to lower their prices, which would result in higher premiums for consumers. Without competition to drive prices down, consumers would not have access to more competitive quotes, leading to financial burdens.
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Restricted Choice: The agreement among firms to avoid competing could limit the range of insurance policies available. Consumers may find fewer options regarding coverage types, limits, and benefits, potentially not finding policies that fit their needs.
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Supernormal Profits Earned: Cartel agreements can allow firms to earn supernormal profits by maintaining high prices. This situation arises because competition is stifled and consumers have fewer alternatives, resulting in a phenomenon where firms profit at the consumers' expense.
Step 2
Suggest two measures the government could consider to discourage anti-competitive practices in industry.
Answer
To discourage anti-competitive practices in the motor insurance industry, the government could consider the following measures:
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Improved Consumer Protection / Education / Awareness: The government should promote consumer education regarding anti-competitive practices. By encouraging consumers to report such practices and helping them understand their rights, awareness among consumers can increase. They can learn to identify and challenge uncompetitive behaviors by changing their insurance providers more readily.
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Improved Regulation of the Industry: Enhanced regulations can discourage collusion among firms. A more robust Competition Authority could monitor industry practices and impose penalties for anti-competitive behavior. This would create a deterrent effect whereby firms think twice before engaging in collusion, protecting consumers from inflated prices and limited choices.