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1.8 The market mechanism, market failure and government intervention in markets

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Question 14

Context 2: THE DIGITAL INFRASTRUCTURE CONTEXT

Extract F

Connecting the Continent: Broadband Infrastructure and Competition

In the European Union, there are over 110 million domestic subscribers to fixed-line high-speed broadband. The largest national markets for superfast broadband are Germany, France, Italy, Spain, and Poland. In the UK, four major telecommunications conglomerates control approximately 85% of the consumer broadband market. The legacy privatised operator, BT Group (operating its retail brand alongside its infrastructure division, Openreach), continues to dominate the market with over 35% direct retail market share and ownership of the vast majority of physical backhaul lines. Independent network providers (often termed 'AltNets') face significant barriers to expansion.

The EU has pushed for a digital single market, relying on the Body of European Regulators for Electronic Communications (BEREC) to coordinate regulatory practices, promote consistent competition rules, and reduce digital boundaries across EU states. In the UK, the Office of Communications (Ofcom) is the designated independent regulator for the telecoms and broadband sector.

Consumers might have doubts about the effectiveness of regulators such as Ofcom. In 2023, mid-contract price rises averaging up to 14.4% (calculated as CPI inflation plus a contractually permitted surcharge of 3.9%) were implemented by major providers, even as real-term consumer incomes fell. Consumer advocates noted that while wholesale network provisioning costs have flattened due to network scaling, retail consumer prices have steadily drifted upwards. Ofcom does not directly cap consumer broadband prices, preferring to focus its regulatory effort on reducing search costs, making switching easier (such as through the 'One Touch Switch' platform), and enforcing greater transparency in contract terms.

'Consumers might have doubts about the effectiveness of regulators such as Ofcom' (Extract F).

Using the data and your economic knowledge, assess methods that could be used by the UK government and regulatory bodies (such as Ofcom) to promote competition in the market for domestic broadband services.

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Markscheme

1.8 The market mechanism, market failure and government intervention in markets Questions

  1. A Level
  2. /Economics
  3. /1.8 The market mechanism, market failure and government intervention in markets

378 exam-style questions on AQA A Level Economics 1.8 The market mechanism, market failure and government intervention in markets, covering 1.8.1 How markets and prices allocate resources, 1.8.2 The meaning of market failure, 1.8.3 Public goods, private goods and quasi-public goods, 1.8.4 Positive and negative externalities in consumption and production, 1.8.5 Merit and demerit goods, 1.8.6 Market imperfections, 1.8.7 Competition policy (A-level only), 1.8.8 Public ownership, privatisation, regulation and deregulation of markets (A-level only), 1.8.9 Government intervention in markets, and 1.8.10 Government failure. Each one has a worked solution and a mark scheme showing where the marks go.

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