Britain’s competition watchdog is launching an investigation into the funeral market after it found the cost of organising one increased by 6% each year – twice the inflation rate – for the past 14 years.

The Competition and Markets Authority (CMA) said funerals typically cost between £3,000 and £5,000. It accused some funeral directors of taking advantage by charging high prices at a time when its customers were vulnerable.

The average cost of a basic funeral in Britain rose to £4,271 last year, up from £1,920 in 2004, the CMA said, citing an analysis by SunLife. Discretionary items such as flowers and catering could add another £2,000. A cremation service cost £3,744 on average. Cremations accounted for more than three-quarters of funeral services.

After publishing its interim report in November, the CMA found that a full investigation was justified, and highlighted concerns about the effectiveness of competition in the sector. The investigation will focus on funeral director and cremation services and should be completed within 18 months.

The watchdog said the reluctance of firms to disclose clear prices, including online, and provide comprehensive information on the quality and range of services made it hard for people to compare funeral directors.

It found low numbers of crematoria in local areas and that the planning regime and high fixed costs were putting off new firms from entering the market. This has led to average price rises of 6% to 8% each year for the past eight years at the largest private operators, while some local authorities have also implemented big increases in fees.

Dignity, the UK’s only publicly listed funeral services firm, said it supported an investigation because it could improve standards across the sector.

The Co-op, another major funeral provider, also welcomed the move. The firm started cutting its prices in 2016, forcing its rival Dignity to slash the price of its cheapest funeral package by 25% in January 2018. Dignity charges £1,995, plus third-party fees, in England and Wales and £1,695, plus disbursements, in Scotland.

However, the CMA said the profit margins at the biggest firms were high by international standards, with Dignity’s in particular “well above” those of similar businesses in other major countries.

Direct cremations – a no-frills option with no ceremony and no mourners present, where the body is collected, cremated and the ashes are returned afterwards – are becoming more popular. David Bowie, who died from liver cancer in 2016, is among those to have chosen this option.

Pure Cremation, which specialises in these services and charges £1,195, estimates there will be 20,000 direct cremations in the UK this year. Catherine Powell, the Berkshire firm’s co-founder, said: “The traditional funeral is still the majority choice. People tend to default to the familiar. But there is rapid growth in the number of people choosing direct cremation for their loved ones and for themselves.”

The Co-op said it was the leading provider of direct cremations, priced at £1,395, with one in 25 of its funerals a direct cremation. Its average funeral cost was £2,864 last year, excluding third-party cremation or burial fees, or £3,987 including those costs.

An estimated 599,000 people died in Britain last year, a small increase on 2017. The Office for National Statistics expects long-term increases in the number of deaths, reaching 700,000 a year by 2040.