Do Consumers Switch to the Best Supplier?
AbstractThis 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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Bibliographic InfoPaper provided by Centre for Competition Policy, University of East Anglia in its series Working Papers with number 07-6.
Length: 30 pages
Date of creation: Apr 2007
Date of revision:
Search costs; switching costs; decision errors; mis-selling;
Other versions of this item:
- L00 - Industrial Organization - - General - - - General
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-13 (All new papers)
- NEP-COM-2007-07-13 (Industrial Competition)
- NEP-MIC-2007-07-13 (Microeconomics)
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