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The market for legal services: an economist's nightmare?

The market for legal services: an economist's nightmare?

Juliet

04/09/2020

Economists’ ideal market – known as ‘perfect competition’ – would operate something like a large town square full of fruit and vegetable stalls. Prices would be clearly visible to consumers and one stall’s products would be very similar to the next, making it unlikely that one seller would set a higher price than their neighbour.

The consumer market for legal services is nothing like this. In today’s world, price comparison sites are about as close as we get to the market-stall situation where a mere glance enables customers to compare one provider’s price to another’s, with clear pricing on a company’s own website a close second. Yet according to a survey commissioned by the Legal Services Consumer Panel, just 3% of customers looking for legal services find prices on price comparison sites, 6% use providers’ websites, and 64% find out prices by speaking to providers. Research by the Legal Services Board shows that just 17% of providers publish prices online at all.

This is perhaps not surprising. Although some services, such as writing a simple will, may be suitable for fixed pricing, many legal services will not be. Moreover, the types of legal service bought by individual consumers, among which probate, will writing and power of attorney feature prominently, mean that 63% of those consumers are over 55 years old. This age group may be more likely to favour phone calls or face-to-face meetings over online price searches.

Nonetheless, the Competition and Markets Authority (CMA) has argued that the difficulty of comparing the prices of legal services could prove damaging to consumers. In particular, revealing prices only in conversations with individual customers could make it possible for providers to practise ‘price discrimination’ – charging different prices to different consumers. Some see this as inherently problematic, and the CMA also highlights a further problem: if different consumers are charged different prices then, even if the minority who do shop around put pressure on providers to reduce prices, this may not benefit other customers. As a result, those who consider only one provider may lose out financially. For example, the Legal Services Board found that the price for a simple, standard will-writing service can range from £110 to £200 depending on the provider, while the price for a specific, complex scenario they invent as an example could be anything from £1,260 to £3,000.

There are certainly areas of the consumer market for legal services that deserve praise. In 2020 74% of consumers in the Legal Service Consumer Panel survey said they had a wide range of choice when choosing a provider, up from 68% in 2016, and 77% said they found it easy to understand prices. However, understanding the differences between this market and a perfectly competitive one may make it easier to see where further advances could be made to benefit consumers.