Yell's dominance of the classified directory market is potentially distorting and discourages potential competitors from entering into the sector, the Competition Commission (CC) has claimed.
Publishing its preliminary findings to a report investigating the present state of the classified directory market, the UK's competition watchdog argues that Yell, which holds a 75 per cent share of the market, consistently sets prices at the maximum permitted by existing controls because the directory is not "constrained by competitors".
The report observes that Yell benefits from a network effect which consolidates its position at the top of the directory tree. While BT may have had some success in launching a rival product to Yell, the CC report argues that the moderate success of this competitor was primarily due to BT's existing brand coverage.
"We accept that BT's re-entry into this market in the last few years is, potentially, a very significant development, and BT has been growing rapidly. However, its market presence is still small compared to Yell's, and Yell has continued to grow its revenues," said the inquiry group chairman, Diana Guy.
"Yell continues to hold a powerful position in this market and we have found that competition is not working effectively. Prices are capped at the moment and we think that, without this price cap, advertisers would pay more than in a well functioning market."
Ms Guy acknowledged the growing role of the internet as a source for finding business contacts but said that "many people continue to use printed directories… and, in fact, the revenues of all the major directory providers have continued to grow".
She gave a warning shot to Yell concerning the lowering of the maximum permitted price in the market, saying that discussions were likely "to focus on the level and scope of possible price controls".
"In deciding how long any price control might be needed, we will take account of the changing nature of this market," she said.
Yell's chief executive, John Condron, responded by saying he was "disappointed" by today's announcement, before warning that the Yell group would "actively represent our views over the next few weeks".