Understanding how consumers make decisions and what affects their behaviour is of key importance across a wide range of policy issues, from the analysis of indirect taxation to the assessment of competition policy. For example, the most recent developments in industrial organisation focus on how firms in imperfectly competitive markets interact, taking the structure of consumer demand as given. The nature of the equilibria that prevail in different markets depends crucially on the nature of consumer decisions.

Past research at IFS has played a leading role in the development of policy-relevant empirical models of consumer behaviour. Looking forward, our research will put the consumer at the heart of competition analysis by providing a rigorous characterisation of consumer behaviour. This is crucial for designing regulatory structures and the implementation of consumer and competition policy across many markets, from retailing to telecoms.

Our research aims to develop the analysis of consumer decision-making in conjunction with the analysis of newly available Consumer Panel data. We study behaviour in Britain in detail but also engage in comparative research on similar data in Europe and North America.

Price indices and measures of consumer welfare are fundamental inputs into many areas of policy, influencing benefit and state pension levels, and monetary policy, as well as private sector wage bargaining. Price indices vary for many reasons, including the types of goods purchased, where the purchases are made and the extent to which firms have market power. Obtaining useful price indices requires estimates of substitution possibilities and the value placed on new goods by consumers at different points in the income distribution. Demand responses are essential inputs in the design of indirect and environmental taxes. Price discrimination and the effective cost of living across different types of consumers are important for understanding the adequacy of levels of welfare benefits and pensions. The new Consumer Panel data open up an exciting new research agenda.