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Irrationality in Consumers’ Switching Decisions: When More Firms May Mean Less Benefit

Author

Listed:
  • Chris M. Wilson

    (University of East Anglia)

  • Catherine Waddams Price

    (University of East Anglia)

Abstract

We report evidence of three types of consumer switching decision errors within the UK electricity market. We identify consumers who do not switch despite substantial available savings, consumers who switch from a cheaper to a more expensive supplier and consumers who switch to a cheaper, but not the cheapest available supplier. Moreover, we find that consumers make more efficient decisions in markets with fewer competitors. This finding is consistent with theories of consumer confusion and “information-overload” rather than other “rational” explanations of consumer mistakes such as perceived differences in firm quality or uncertainty over consumers’ own demand.

Suggested Citation

  • Chris M. Wilson & Catherine Waddams Price, 2005. "Irrationality in Consumers’ Switching Decisions: When More Firms May Mean Less Benefit," Industrial Organization 0509010, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0509010
    Note: Type of Document - pdf; pages: 28
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0509/0509010.pdf
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    Citations

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    Cited by:

    1. Nils-Henrik M. von der Fehr & Petter Vegard Hansen, 2010. "Electricity Retailing in Norway," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 25-46.
    2. Vincze, János, 2010. "Miért és mitől védjük a fogyasztókat?. Aszimmetrikus információ és/vagy korlátozott racionalitás [Asymmetric information and/or bounded rationality: why are consumers protected and from what?]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 725-752.
    3. Curtis, John & Devitt, Niamh & di Cosmo, Valeria & Farrell, Niall & FitzGerald, John & Hyland, Marie & Lynch, Muireann & Lyons, Sean & McCoy, Daire & Malaguzzi Valeri, Laura & Walsh, Darragh, 2014. "Irish Energy Policy: An Analysis of Current Issues," Research Series, Economic and Social Research Institute (ESRI), number rs37 edited by FitzGerald, John & Malaguzzi Valeri, Laura, June.
    4. Camara, N'Famory & Xu, Deyi & Binyet, Emmanuel, 2017. "Understanding household energy use, decision making and behaviour in Guinea-Conakry by applying behavioural economics," Renewable and Sustainable Energy Reviews, Elsevier, vol. 79(C), pages 1380-1391.
    5. Brennan, Timothy J., 2007. "Consumer preference not to choose: Methodological and policy implications," Energy Policy, Elsevier, vol. 35(3), pages 1616-1627, March.
    6. Ravi Dutta-Powell & Min-Taec Kim & Cameron Tan, 2021. "I don't get it, but I like it: Detailed pricing information increases confidence, but decreases quality of decision making," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 5(1), pages 61-76, Septembre.
    7. Astrid Gamba & Anna Bottasso, 2019. "Consumer inertia in energy markets: Insights from behavioral economics," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2019(3), pages 113-130.
    8. Michael G. Pollitt & Irina Shaorshadze, 2013. "The role of behavioural economics in energy and climate policy," Chapters, in: Roger Fouquet (ed.), Handbook on Energy and Climate Change, chapter 24, pages 523-546, Edward Elgar Publishing.
    9. Patrick Xavier & Dimitri Ypsilanti, 2010. "Behavioral Economics and Telecommunications Policy," Chapters, in: Anastassios Gentzoglanis & Anders Henten (ed.), Regulation and the Evolution of the Global Telecommunications Industry, chapter 4, Edward Elgar Publishing.

    More about this item

    Keywords

    Consumer choice; Switching costs; Behavioural IO;
    All these keywords.

    JEL classification:

    • L00 - Industrial Organization - - General - - - General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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