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Debiasing through auction? Inertia in the liberalization of retail markets

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  • Paolo Bertoletti
  • Clara Poletti

Abstract

We analize a market in the process of liberalization. Consumers are biased in favor of the incumbent firm and we assume that they can discover the true value of new suppliers only by switching. In an infinitely-repeated game setting with Bertrand competition, we first show that efficient entry might not take place. We then evaluate the effect of organizing a public auction for assigning consumers to a default supplier and show that such a mechanism (which respects the freedom of choice by consumers) would support entry efficiency. However, auctioning might also increase inefficient, although temporary, entry.

Suggested Citation

  • Paolo Bertoletti & Clara Poletti, 2012. "Debiasing through auction? Inertia in the liberalization of retail markets," IEFE Working Papers 47, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    • Handle: RePEc:bcu:iefewp:iefewp47
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    References listed on IDEAS

    as
    1. Christine Jolls & Cass R. Sunstein, 2006. "Debiasing through Law," The Journal of Legal Studies, University of Chicago Press, vol. 35(1), pages 199-242, January.
    2. Waterson, Michael, 2003. "Consumers and Competition," Economic Research Papers 269563, University of Warwick - Department of Economics.
    3. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    4. Waterson, Michael, 2003. "The role of consumers in competition and competition policy," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 129-150, February.
    5. Mark Armstrong & David E.M. Sappington, 2006. "Regulation, Competition and Liberalization," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 325-366, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    electricity retail; default supplier; entry; competition policy; universal service; obligations.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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