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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. Silvia Concettini & Anna Créti, 2013. "Liberalization of electricity retailing in Europe: coming back or going forth?," Working Papers hal-00915924, HAL.
  2. Paolo Crosetto & Alexia Gaudeul, 2011. "Do consumers prefer offers that are easy to compare? An experimental investigation," Jena Economic Research Papers 2011-044, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. 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 1352, Faculty of Economics, University of Cambridge.
  4. Lunn, Pete, 2012. "Behavioural Economics and Policymaking: Learning from the Early Adopters," Papers WP425, Economic and Social Research Institute (ESRI).
  5. repec:bri:cmpowp:13/321 is not listed on IDEAS
  6. Alexia Gaudeul & Robert Sugden, 2007. "Spurious Complexity and Common Standards in Markets for Consumer Goods," Working Papers 07-20, Centre for Competition Policy, University of East Anglia.
  7. Ben McQuillin & Robert Sugden, 2012. "Reconciling normative and behavioural economics: the problems to be solved," Social Choice and Welfare, Springer, vol. 38(4), pages 553-567, April.
  8. 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.
  9. Stefania Sitzia & Daniel Zizzo, 2011. "Does product complexity matter for competition in experimental retail markets?," Theory and Decision, Springer, vol. 70(1), pages 65-82, January.
  10. 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.
  11. Yves Ortiz, 2011. "Prices and Choices in the Swiss Health Care Insurance Market," Working Papers 11.09, Swiss National Bank, Study Center Gerzensee.
  12. Lunn, Pete, 2011. "Telecommunications Consumers: A Behavioural Economic Analysis," Papers WP417, Economic and Social Research Institute (ESRI).
  13. 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 1149, Faculty of Economics, University of Cambridge.
  14. Neveu, Andre R., 2013. "Fiscal policy and business cycle characteristics in a heterogeneous agent macro model," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 224-240.

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