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Consumer Preference Not to Choose: Methodological and Policy Implications

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  • Brennan, Timothy

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    (Resources for the Future)

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    Abstract

    Residential consumers remain reluctant to choose new electricity suppliers. Even the most successful jurisdictions, four U.S. states and other countries, have had to adopt extensive consumer education procedures that serve largely to confirm that choosing electricity suppliers is daunting. Electricity is not unique in this respect; numerous studies find that consumers are generally reluctant to switch brands, even when they are well-informed about product characteristics. If consumers prefer not to choose, opening regulated markets can reduce welfare, even for some consumers who do switch, as the incumbent can exploit this preference by raising price above the formerly regulated level. Policies to open markets might be successful even if limited to industrial and commercial customers, with residential prices based on those in nominally competitive wholesale markets.

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    Bibliographic Info

    Paper provided by Resources For the Future in its series Discussion Papers with number dp-05-51.

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    Date of creation: 11 Nov 2005
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    Handle: RePEc:rff:dpaper:dp-05-51

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    Keywords: electricity markets; deregulation; consumer choice; residential markets;

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    1. Brennan, Timothy J., 1994. "Markets, Information, and Benevolence," Economics and Philosophy, Cambridge University Press, vol. 10(02), pages 151-168, October.
    2. Zarnikau, Jay, 2005. "A review of efforts to restructure Texas' electricity market," Energy Policy, Elsevier, vol. 33(1), pages 15-25, January.
    3. Steven Salop & Joseph Stiglitz, 1977. "Bargains and ripoffs: a model of monopolistically competitive price dispersion," Special Studies Papers 94, Board of Governors of the Federal Reserve System (U.S.).
    4. Littlechild, S.C., 2000. "Why We Need Electricity Retailers: A Reply to Joskow on Wholesale Spot Price pass-through," Cambridge Working Papers in Economics 0008, Faculty of Economics, University of Cambridge.
    5. Flaim, Theresa, 2000. "The Big Retail "Bust": What Will It Take to Get True Competition?," The Electricity Journal, Elsevier, vol. 13(2), pages 41-54, March.
    6. Chris M. Wilson & Catherine Waddams Price, 2005. "Irrationality in Consumers’ Switching Decisions: When More Firms May Mean Less Benefit," Industrial Organization 0509010, EconWPA.
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