According to him: “The waterbed effect is the natural, but not necessarily intended, potential to squeeze one part of a complicated and complex regulated business model (and the attendant regulatory processes) to cause a serious bulge elsewhere in the process.
“As an owner in the 70s of a waterbed (with the attendant fond memories) the metaphor of the water-filled mattress seems to be a commonsense, albeit simplistic, description supported by a little-known mathematical formula called Bode’s Sensitivity Integral.
“While a large and powerful firm or distribution channel improves its own terms of advice supply by exercising its market power in getting cost reductions, the terms of its lesser resourced competitors can deteriorate sufficiently, so as ultimately to increase the average price of advice – the waterbed effect.”
simoney.kyriakou@ft.com
