Le Patourel v BT Group plc: What does the CAT’s judgement mean for the use of Behavioural Economics in class actions in the UK?

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Practice area: Behavioural and experimental economics | Behavioural Economics | Competition Economics | Consumer and firm behaviour
Client: N/A
Published: 30 January, 2025
Keywords: behavioural behavioural economics behavioural in focus competition consumer behaviour

In December 2024 the UK Competition Appeal Tribunal dismissed Justin Le Patourel’s claim which centred on allegations that BT abused its dominant market position by imposing excessive and unfair pricing for Standalone Fixed Voice Services (full judgement).

For the first time in the UK, behavioural economists were engaged to provide evidence related to one of the issues of liability. Namely, whether BT’s prices were excessive and (also) unfair and thereby abusive.[1]

The CAT found that BT qualified as dominant in the relevant market (SFV services) and that BT’s prices were persistently excessive, but ruled that BT’s prices were not unfair.

The CAT’s decision regarding unfairness was due (in part) to the “distinctive value” BT provided to the claimants in terms of features provided to the customers and also BT’s brand value. Customers’ loyalty could not be dismissed as them paying the prices “because they had to” as they were not captive or “generally inert”.

Behavioural economics evidence

So, what lessons can we take from this landmark case and the role we expect behavioural economics to take in future cases?

In the BT case, the behavioural economics argument turned on consumer switching, and whether customers who did not switch “should be assumed to have ascribed positive economic value to their BT landline” or was non-switching due to inertia and generally customers being disengaged.

So, the key question was to what extent those who did not switch “made a positive or deliberate choice to stay” and so were “sufficiently engaged”, rather than being “inert and disengaged”. The class representative argued that “little or nothing” can be inferred as to a positive choice to stay as the customers were generally disengaged due to “what can be said from a behavioural economics point of view about how consumers act (or not) generally”.[2]

Overall, the CAT concluded that it is likely that a substantial number of those who stayed probably did so “out of a sense of loyalty to a brand”, and they were “not generally inert” as shown by the fact that most eventually did switch or are continuing to switch. The CAT appears to have been more convinced by BT’s expert’s evidence than that of the class representative’s expert, with BT’s expert seeming to have made better use of the available data on customer switching, awareness and engagement.

What lessons can we take from the CAT decision?

  • While explaining behaviour via theories, such as rational inaction or inertia, may be given weight, it is best to substantiate these with empirical evidence where possible.
  • It is important to take into account the available quantitative data – such as on switching – and carefully consider what this says about behaviour, engagement and existence of economic value for customers.[3]
  • It is important to analyse the context in which consumers make decisions, including what information they receive and its framing, and the impact this would have on behaviour. These aspects – including the content and forms of communication customers received, and aspects of framing related to salience (e.g. what page information was on) – entered into the CAT’s judgement as to whether customers would have been engaged. In future cases, this could be generalised to the ‘choice architecture’ customers faced when making decisions.

What does the future look like for behavioural economics evidence?

Behavioural economics plays an important role in understanding customer behaviour. However, as the CAT seemed to agree, both quantitative data and qualitative evidence should be used where possible (and available) to strengthen and substantiate the arguments and consider the behavioural frameworks within the context at hand.

The specific nature of the environment and setting in which customers make decisions (termed choice architecture) must be taken into account and analysed with care. Behavioural theories should then be applied to that choice architecture and, where data is available (for example in the BT case customer switching data), this data should be considered within the context of the analysis. Empirical evidence may be drawn from data on the customers in the case itself or other empirical studies, and contexts, so long as these are sufficiently relevant.

Where data or empirical evidence is not available, parties can strengthen their case and investigate customer behaviour by drawing upon the techniques of experimental economics to test customer behaviours.

Our behavioural experts at London Economics have followed this case intently as indeed has the legal sector and class action funders. Our experts have previously provided independent behavioural economics expertise to class actions in Australia and Canada, where the class action regime is more developed, and have experience conducting behavioural experiments and empirical analysis of customer behaviour for a retail finance sector client defending regulatory enforcement action. Thus, we welcome the use of behavioural economics to provide greater insight into customer decision-making and choice.

If you have a question about customer behaviour and would like to explore if behavioural economics may help shed a light on this, please reach out to one of our experts.    

James Suter Divisional Director at London Economics. An experienced economist with expertise in behavioural economics, particularly assessing and quantifying the effects of commercial practices on marketplace decision-making, consumer outcomes and harm. Experience providing independent expert witness services, preparing evidence and drafting expert witness reports, in particular for consumer class actions and regulatory investigations, in sectors such as insurance and travel. You can contact James via email.

 

Dr Charlotte Duke Partner at London Economics provides expert analysis in consumer issues. Charlotte and James provided independent analysis in the FCA’s investigation of Lloyds Banking General Insurance renewal communications. Our experts independent work being recognised by the FCA and contributing to a reduction in the fine imposed by the FCA (FCA Final Notice LGBI). Charlotte was also an independent expert to the Federal Court of Australia in one of Australia’s largest class actions into the sale of add-on insurance, and class actions assessing choice architecture and online retail sites in Canada, she has also recently worked with the OECD on choice architecture and online dark commercial patterns. You can contact Charlotte via email.

For a further deep dive into the behavioural economics of the BT case our expert James Suter considers the key mechanisms and arguments below.

 

Following an Ofcom investigation into BT’s practices which found that customers were getting “poor value for money” BT cut landline prices but did not offer compensation for past instances of overcharging. This led to a class-action claim – Justin Le Patourel v BT Group PLC – at the Competition Appeal Tribunal (CAT) seeking £1.1 billion in damages on behalf of over 2 million customers, alleging that BT charged excessive and unfair prices and for landline services.

Among other evidence, the case heard crucial testimony from experts in behavioural economics, in particular on customers’ decision-making to stay with BT regardless of the price rises. In this note we take a brief look at the behavioural economics evidence.

The behavioural economics evidence in Le Patourel v BT

Experts in the field of behavioural economics – Prof Graham Loomes for the class representative and Dr Stefan Hunt for BT – gave evidence on the issue of whether customers made an informed, deliberate choice to stay with BT despite price rises.[4] The behavioural economics evidence, which played a role in the CAT’s eventual decision, encompassed principles from the literature, analysis of the context in which choices were made, in particular information provided to customers, and data/empirical evidence on consumer behaviour.

On the one hand it was argued by Prof Loomes that in many cases it was “not an active choice” but was simply the default, without “enough of a trigger to encourage them to allocate more of their time and effort to looking for alternatives”. He argued that rational inattention – i.e. sophisticated assessment of whether action is worth taking – is not a realistic model of behaviour and that although deciding not to switch based on intuitive judgment and a heuristic could be said to be ‘deliberate’, it does not involve any action. He concluded “the majority, possibly the great majority, who continued to purchase [the services] are likely to have done so by default after minimal deliberation with little information or evaluation of alternatives”.[5]

Loomes’ argued that behavioural factors including status quo bias, loss aversion, regret aversion, the omission-commission bias may explain why many BT customers did not switch even when faced with price hikes. While Hunt agreed that these are established factors, he questioned the degree to which they are relevant in this particular setting. While default effects are probably the most established of all of these behavioural biases, he noted that in this case there is large amounts of switching. He argued that recent work has found that specific evidence is needed to judge whether a given effect is relevant in a given setting and he does not think there is “any particular evidence for any of these factors” in this instance. He contended that those who switched clearly will have deliberated and even those who did not switch were aware of the price rises, understood those price rises over time, knew the price they are on, and were aware of alternative providers.

The need to understand the context of customers’ decisions and their behaviour, using the best available data was also highlighted. To assess whether customers are engaged, Hunt argued one must analyse switching, awareness, and the sufficiency of ‘triggers’ to prompt engagement, while to assess whether they are informed it is necessary consider what information they need and receive and their ability to assess and compare products. He argued that a customer may be seen as deliberate “if they are engaged, informed, and have no material barriers to [acting]”, and testing of deliberateness should examine switching, whether “material barriers” exist, and whether those who did not switch are “well matched” to the product based on their preferences and perceptions of the product. Loomes, for his part, noted that it is difficult to know the motivations and the reasons for non-switching unless one undertakes “a reasonably focused study of it”.

The case also illustrated the importance of analysing customer communications from a behavioural perspective. A key part of the behavioural experts’ evidence focussed on the effectiveness of communications and other stimuli to BT customers at prompting engagement. Here a ‘trigger’ was defined as a “stimulus” that can lead to action such as engaging with a decision. It was argued that anything that informs customers about the changes to their service, such as price rises, is a type of trigger, and pointed to the wide range of communications giving information on price increases (at least five types of communication from BT, plus bank statements and press announcements). The experts offered different views on whether these communications will reinforce one another (Hunt) or result in lack of reaction due to “habituation” (Loomes). On the effectiveness of the communications, various sources of empirical evidence were cited, including surveys from various sectors, such as evidence showing good awareness of price rises and relatively high propensity to read letters, which entered into the final judgement in the case. The specific placement of information (price changes) within letters and the impact of this was also raised and in its judgement the CAT reflected on this aspect of framing.

Indeed, our own previous work at London Economics implies the experts and the court were right to focus on these aspects. Consumer behaviour often hinges on the information consumers are presented with and how it is framed – part of the so-called choice architecture. For instance, our work as independent behavioural economics experts in class actions in Australia and Canada identified how choice architecture will influence consumers’ decisions, and while our work for a client defending against regulatory enforcement action showed empirically (via switching data and a behavioural experiment) that the placement and salience of information in communications affects its influence on consumer behaviour.

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[1] These Limbs of liability come United Brands v European Commission judgement.

[2] Judgement paragraphs 1101-1102.

[3] For instance, the judgement cites switching figures, several sources of quantitative evidence used by the experts on customers’ engagement with communications, and statistics showing that customers in question tended to use landlines more to make calls than customers generally (consistent with valuing traditional telephony).

[4] For details of the behavioural economics gave evidence and to read the verbal evidence, refer transcript of day 19 of the hearing. All quotes here originate from that transcript unless stated otherwise.

[5] Case Management Conference on 3 July 2023.