Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market†

Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market† AbstractMany jurisdictions around the world have deregulated utilities and opened retail markets to competition. However, inertial decision making can diminish consumer benefits of retail competition. Using household-level data from the Texas residential electricity market, we document evidence of consumer inertia. We estimate an econometric model of retail choice to measure two sources of inertia: search frictions/inattention and a brand advantage that consumers afford the incumbent. We find that households rarely search for alternative retailers, and when they do search, households attach a brand advantage to the incumbent. Counterfactual experiments show that low-cost information interventions can notably increase consumer surplus. (JEL D12, D83, L81, L94, L98, M31) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Economic Policy American Economic Association

Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
1945-7731
D.O.I.
10.1257/pol.20150235
Publisher site
See Article on Publisher Site

Abstract

AbstractMany jurisdictions around the world have deregulated utilities and opened retail markets to competition. However, inertial decision making can diminish consumer benefits of retail competition. Using household-level data from the Texas residential electricity market, we document evidence of consumer inertia. We estimate an econometric model of retail choice to measure two sources of inertia: search frictions/inattention and a brand advantage that consumers afford the incumbent. We find that households rarely search for alternative retailers, and when they do search, households attach a brand advantage to the incumbent. Counterfactual experiments show that low-cost information interventions can notably increase consumer surplus. (JEL D12, D83, L81, L94, L98, M31)

Journal

American Economic Journal: Economic PolicyAmerican Economic Association

Published: Nov 1, 2017

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