Estimation of Search Frictions in the British Electricity Market
AbstractThis paper studies consumer search and pricing behaviour in the British domestic electricity market following its opening to competition in 1999. We develop a sequential search model in which an incumbent and an entrant group compete for consumers who nd it costly to obtain information on prices other than from their current supplier. We use a large data set on prices and input costs to structurally estimate the model. Our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns. We confront our stimates with observed switching behaviour and nd they match well. Keywords:
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 940.
Date of creation: 2010
Date of revision:
electricity ; consumer search ; price competition JEL Classification: C14 ; D83 ; L13;
Find related papers by JEL classification:
- pri - - - - - -
- com - - - - - -
- JEL - Labor and Demographic Economics - - - - -
- Cla - Mathematical and Quantitative Methods - - - - -
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-28 (All new papers)
- NEP-ENE-2010-08-28 (Energy Economics)
- NEP-EUR-2010-08-28 (Microeconomic European Issues)
- NEP-MKT-2010-08-28 (Marketing)
- NEP-REG-2010-08-28 (Regulation)
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- Wilson, Chris M., 2012. "Market frictions: A unified model of search costs and switching costs," European Economic Review, Elsevier, vol. 56(6), pages 1070-1086.
- Mirza, Faisal Mehmood & Bergland, Olvar, 2012. "Pass-through of wholesale price to the end user retail price in the Norwegian electricity market," Energy Economics, Elsevier, vol. 34(6), pages 2003-2012.
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