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Do consumers switch to the best supplier?

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  • Chris M. Wilson
  • Catherine Waddams Price

Abstract

This paper demonstrates that the ability of consumers to choose the best alternative supplier is limited even in a relatively simple and transparent market. Across two independent datasets from the UK electricity market we find, on aggregate, that those consumers switching exclusively for price reasons appropriated less than a half of the gains available. While such outcomes can be explained by high search costs, the observation that at least 17% of consumers actually reduced their surplus as a result of switching cannot. We rule out an explanation of incorrect demand prediction, and test for others including mis-selling. Copyright 2010 Oxford University Press 2010 All rights reserved, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 62 (2010)
Issue (Month): 4 (October)
Pages: 647-668

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Handle: RePEc:oup:oxecpp:v:62:y:2010:i:4:p:647-668

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Cited by:
  1. Platchkov, L. & Pollitt, M. G. & Reiner, D. & Shaorshadze, I., 2011. "2010 EPRG Public Opinion Survey: Policy Preferences and Energy Saving Measures," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1149, Faculty of Economics, University of Cambridge.
  2. Stefania Sitzia & Daniel Zizzo, 2011. "Does product complexity matter for competition in experimental retail markets?," Theory and Decision, Springer, Springer, vol. 70(1), pages 65-82, January.
  3. Silvia Concettini & Anna Créti, 2013. "Liberalization of electricity retailing in Europe: coming back or going forth?," Working Papers, HAL hal-00915924, HAL.
  4. Crosetto, Paolo & Gaudeul, Alexia, 2012. "Do consumers prefer offers that are easy to compare? An experimental investigation," MPRA Paper 41462, University Library of Munich, Germany.
  5. Peter D.Lunn, 2012. "Behavioural Economics and Policy making,Learning from the Early Adopters," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 43(3), pages 423-449.
  6. Gaudeul, Alexia, 2007. "Spurious Complexity and Common Standards in Markets for Consumer Goods," MPRA Paper 19647, University Library of Munich, Germany.
  7. Clifton, Judith & Díaz-Fuentes, Daniel & Fernández-Gutiérrez, Marcos, 2013. "How consumers’ socio-economic background influences satisfaction: Insights for better utility regulation," MPRA Paper 47271, University Library of Munich, Germany.
  8. Lunn, Pete, 2013. "Telecommunications Consumers: A Behavioural Economic Analysis," Papers, Economic and Social Research Institute (ESRI) RB2012/4/3, Economic and Social Research Institute (ESRI).
  9. Clifton, Judith & Díaz-Fuentes, Daniel & Fernández Gutiérrez, Marcos & Revuelta, Julio, 2011. "Is Market-Oriented Reform Producing a “Two-Track” Europe? Evidence from Electricity and Telecommunications," MPRA Paper 33018, University Library of Munich, Germany.
  10. Yves Ortiz, 2011. "Prices and Choices in the Swiss Health Care Insurance Market," Working Papers, Swiss National Bank, Study Center Gerzensee 11.09, Swiss National Bank, Study Center Gerzensee.
  11. Neveu, Andre R., 2013. "Fiscal policy and business cycle characteristics in a heterogeneous agent macro model," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 92(C), pages 224-240.
  12. Vincze, János & Koltay, Gábor, 2009. "Fogyasztói döntések a viselkedési közgazdaságtan szemszögéből
    [Consumer decisions from the angle of behavioural economics]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 495-525.
  13. repec:bri:cmpowp:13/321 is not listed on IDEAS
  14. Musiliu 0. Oseni & Michael G. Poilitt & David M. Retner & Laura-Lucia Richter & Kong Chyong, 2013. "2013 EPRG Public Opinion Survey: Smart Energy Survey — Attitudes and Behaviours," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1352, Faculty of Economics, University of Cambridge.
  15. Ben McQuillin & Robert Sugden, 2012. "Reconciling normative and behavioural economics: the problems to be solved," Social Choice and Welfare, Springer, Springer, vol. 38(4), pages 553-567, April.

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