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Do Consumers Switch to the Best Supplier?

Author

Listed:
  • Chris M. Wilson

    (Department of Economics, University of Oxford)

  • Catherine Waddams Price

    (Centre for Competition Policy and Norwich Business School, University of East Anglia)

Abstract

This paper suggests that the ability of consumers to choose accurately between alternative suppliers is substantially limited even in a relatively simple and transparent market. Across two independent datasets from the UK electricity market we find, on aggregate, that those consumers switching exclusively for price reasons appropriated between a quarter and a half of the maximum gains available. While such outcomes can be explained by high search costs, the observation that at least a fifth of the consumers actually reduced their surplus as a result of switching cannot. We consider and reject several alternative explanations to pure decision error.

Suggested Citation

  • Chris M. Wilson & Catherine Waddams Price, 2007. "Do Consumers Switch to the Best Supplier?," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2007-06, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:ueaccp:2007_06
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    Citations

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    Cited by:

    1. Dominique Finon, 2008. "Investment risk allocation in decentralised electricity markets. The need of long-term contracts and vertical integration," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 32(2), pages 150-183, June.
    2. van Damme, E.E.C., 2007. "Liberalising Gambling Markets : Lessons from Network Industries?," Discussion Paper 2007-025, Tilburg University, Tilburg Law and Economic Center.
    3. 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.
    4. Laura Platchkov & Michael G. Pollitt & David Reiner & Irina Shaorshadze, 2011. "2010 EPRG Public Opinion Survey: Policy Preferences and Energy Saving Measures," Working Papers EPRG 1122, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    5. KalaycI, Kenan & Potters, Jan, 2011. "Buyer confusion and market prices," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 14-22, January.
    6. Yoonhee Tina Chang & Catherine Waddams Price, 2008. "Gain or Pain: Does Consumer Activity Reflect Utility Maximisation?," Working Papers 08-15, Centre for Competition Policy, University of East Anglia.
    7. Silvia Blasi & Silvia Rita Sedita, 2020. "The diffusion of a policy innovation in the energy sector: evidence from the collective switching case in Europe," Industry and Innovation, Taylor & Francis Journals, vol. 27(6), pages 680-704, June.
    8. Stephen D. Thomas, 2012. "Not Too Smart an Innovation: Britain's Plans to Switch Consumers to Smart Electricity and Gas Meters," Energy & Environment, , vol. 23(6-7), pages 1057-1074, October.

    More about this item

    Keywords

    Search Costs; Switching Costs; Decision Errors; Mis-selling.;
    All these keywords.

    JEL classification:

    • L00 - Industrial Organization - - General - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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