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Price transparency in residential electricity: Experiments for regulatory policy

Author

Listed:
  • Peter D. Lunn

    (Economic and Social Research Institute and Department of Economics, Trinity College Dublin, Ireland)

  • Marek Bohacek

    (Institute for Neuroscience, Trinity College Dublin, Ireland)

Abstract

We report two laboratory studies conducted in collaboration with a national energy regulator. The first tested whether consumers have difficulties when confronted with unit prices expressed as discounts from standard rates that vary between suppliers. The results imply that such discounts bias decisions and that percentage discounts reduce consumers' ability to integrate product information. The second study pretested an intervention: a mandatory "Estimated Annual Bill" (EAB) calculated for a customer with average usage. The results indicate that the EAB is likely to help consumers to assess the value of advertised packages, to choose packages with lower unit rates, and to integrate product information accurately. In addition to providing evidence for policy, our findings are consistent with decision-making mechanisms that give increased weight to product information that is easy to process.

Suggested Citation

  • Peter D. Lunn & Marek Bohacek, 2017. "Price transparency in residential electricity: Experiments for regulatory policy," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 1(2), pages 31-37, September.
    • Handle: RePEc:beh:jbepv1:v:1:y:2017:i:2:p:31-37
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    References listed on IDEAS

    as
    1. Paul L. Joskow, 2008. "Lessons Learned from Electricity Market Liberalization," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 9-42.
    2. Lunn, Pete & Bohacek, Marek & Somerville, Jason & Ni Choisdealbha, Aine & McGowan, Feidhlim, 2016. "PRICE Lab: An Investigation of Consumers’ Capabilities with Complex Products," Research Series, Economic and Social Research Institute (ESRI), number BKMNEXT306, June.
    3. Brennan, Timothy J., 2007. "Consumer preference not to choose: Methodological and policy implications," Energy Policy, Elsevier, vol. 35(3), pages 1616-1627, March.
    4. repec:cup:judgdm:v:2:y:2007:i::p:371-379 is not listed on IDEAS
    5. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    6. Lunn, Pete & Bohacek, Marek & McGowan, Feidhlim, 2016. "The Surplus Identification Task and Limits to Multi-Attribute Consumer Choice," Papers WP536, Economic and Social Research Institute (ESRI).
    7. Chris M. Wilson & Catherine Waddams Price, 2010. "Do consumers switch to the best supplier?," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 647-668, October.
    8. Stefania Sitzia & Jiwei Zheng & Daniel Zizzo, 2015. "Inattentive consumers in markets for services," Theory and Decision, Springer, vol. 79(2), pages 307-332, September.
    9. Hyeong Kim & Thomas Kramer, 2006. "The moderating effects of need for cognition and cognitive effort on responses to multi-dimensional prices," Marketing Letters, Springer, vol. 17(3), pages 193-203, July.
    10. 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.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Whelan, Karl & Hegarty, Tadgh, 2023. "Do Gamblers Understand Complex Bets? Evidence From Asian Handicap Betting on Soccer," CEPR Discussion Papers 18153, C.E.P.R. Discussion Papers.
    2. 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.
    3. McGowan, Féidhlim, 2018. "The roaming regulation and the case for applying behavioural industrial organisation to EU competition policy," Papers WP598, Economic and Social Research Institute (ESRI).
    4. Regan, Mark & Keane, Claire & Walsh, John R, 2018. "Using behavioural experiments to pre-test policy," Papers BP2019/2, Economic and Social Research Institute (ESRI).

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    More about this item

    Keywords

    price transparency; mandated simplification; consumer protection; energy;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection

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