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Do Consumers Switch to the Best Supplier?

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  • Chris Wilson

    ()
    (Department of Economics, University of Oxford)

  • Catherine Waddams Price

    ()
    (Centre for Competition Policy, University of East Anglia)

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    Abstract

    This paper assesses the ability of consumers to choose between alternative suppliers. Across two independent datasets from the UK electricity market we find that consumers switching exclusively for price reasons appropriated only a quarter to half of the maximum gains available. While such behaviour can be explained by high search costs, the observation that 20-31% of the consumers actually reduced their surplus as a result of switching cannot. A brief analysis rejects an explanation involving suppliers' mis-selling tactics. Consumers may need direct protection, as well as good information, if their decisions are insufficiently accurate to engender competitive markets.

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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP07-6.pdf
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    Bibliographic Info

    Paper provided by Centre for Competition Policy, University of East Anglia in its series Working Papers with number 07-6.

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    Length: 30 pages
    Date of creation: Apr 2007
    Date of revision:
    Handle: RePEc:ccp:wpaper:wp07-06

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    Related research

    Keywords: Search costs; switching costs; decision errors; mis-selling;

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    Cited by:
    1. 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.
    2. Gaudeul, Alexia, 2007. "Spurious Complexity and Common Standards in Markets for Consumer Goods," MPRA Paper 19647, University Library of Munich, Germany.
    3. Silvia Concettini & Anna Créti, 2013. "Liberalization of electricity retailing in Europe: coming back or going forth?," Working Papers hal-00915924, HAL.
    4. Lunn, Pete, 2011. "Telecommunications Consumers: A Behavioural Economic Analysis," Papers WP417, Economic and Social Research Institute (ESRI).
    5. 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.
    6. 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.
    7. Lunn, Pete, 2012. "Behavioural Economics and Policymaking: Learning from the Early Adopters," Papers WP425, Economic and Social Research Institute (ESRI).
    8. 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.
    9. Yves Ortiz, 2011. "Prices and Choices in the Swiss Health Care Insurance Market," Working Papers 11.09, Swiss National Bank, Study Center Gerzensee.
    10. repec:bri:cmpowp:13/321 is not listed on IDEAS
    11. 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.
    12. 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.
    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. 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.

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