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A Measure of Switching Costs in the GB Electricity Retail Market

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  • Salies, Evens

Abstract

In most liberalised electricity retail markets, incumbent firms still hold the majority of residential consumers. This situation focused the attention of regulatory institutions and energy economists on the determinants of consumers switching decisions. Fewer studies have, however, been devoted to measuring switching costs. In the present paper we calculate these costs in the Great Britain electricity retail market by revisiting the model suggested in Shy, O. (2002), A quick-and-easy method for estimating switching costs, International Journal of Industrial Organization, 20, pp. 71–87. The average net cost of switching regional incumbents is €385 while the net cost of switching back to them is negative for customers on standard credit or direct debit plans but positive for prepayment customers.

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File URL: http://mpra.ub.uni-muenchen.de/28255/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28255.

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Date of creation: Jun 2005
Date of revision: Apr 2007
Handle: RePEc:pra:mprapa:28255

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Keywords: Electricity Retail; Switching Costs; Undercut-Proof Property;

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  1. 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.
  2. Monica Giulietti & Catherine Waddams Price & Michael Waterson, 2005. "Consumer Choice and Competition Policy: a Study of UK Energy Markets," Economic Journal, Royal Economic Society, vol. 115(506), pages 949-968, October.
  3. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  4. Shy, Oz, 2002. "A quick-and-easy method for estimating switching costs," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 71-87, January.
  5. Waddams Price, Catherine & Bennett, Matthew, 1999. "New gas in old pipes: opening the UK residential gas market to competition," Utilities Policy, Elsevier, vol. 8(1), pages 1-15, March.
  6. Jackie Krafft & Evens Salies, 2006. "The cost of switching Internet providers in the French broadband industry, or why ADSL has diffused faster than other innovative technologies"," Documents de Travail de l'OFCE 2006-16, Observatoire Francais des Conjonctures Economiques (OFCE).
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