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The effect of price on electricity contract choice

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  • Vesterberg, Mattias

Abstract

I explore how households switch between fixed-price and variable-price electricity contracts in response to variations in price and temperature, conditional on previous contract choice. Using panel data with roughly 54,000 Swedish households, a dynamic probit model is estimated. The results suggest that the choice of contract exhibits substantial state dependence, with an estimated marginal effect of previous contract choice of 0.96, and that the short-run effects of variation in prices and temperature on the choice of electricity contract are small. Further, the state dependence and price responsiveness are similar across housing types, income levels and other dimensions. A plausible explanation of these results is that transaction costs are perceived to be larger than the relatively small cost savings from switching between contracts.

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  • Vesterberg, Mattias, 2018. "The effect of price on electricity contract choice," Energy Economics, Elsevier, vol. 69(C), pages 59-70.
    • Handle: RePEc:eee:eneeco:v:69:y:2018:i:c:p:59-70
    DOI: 10.1016/j.eneco.2017.10.039
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    Cited by:

    1. Andreas Ziegler, 2018. "Heterogeneous preferences and the individual change to alternative electricity contracts," MAGKS Papers on Economics 201827, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. Baltaduonis, Rimvydas & Jaraitė, Jūratė & Kažukauskas, Andrius, 2025. "Behavioral interventions and market efficiency: The case of a volatile retail electricity market," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 114(C).
    3. Tsao, Yu-Chung & Vu, Thuy-Linh, 2019. "Power supply chain network design problem for smart grid considering differential pricing and buy-back policies," Energy Economics, Elsevier, vol. 81(C), pages 493-502.
    4. Brännlund, Runar & Vesterberg, Mattias, 2021. "Peak and off-peak demand for electricity: Is there a potential for load shifting?," Energy Economics, Elsevier, vol. 102(C).
    5. Tomasz Rokicki & Piotr Bórawski & Barbara Gradziuk & Piotr Gradziuk & Aldona Mrówczyńska-Kamińska & Joanna Kozak & Danuta Jolanta Guzal-Dec & Kamil Wojtczuk, 2021. "Differentiation and Changes of Household Electricity Prices in EU Countries," Energies, MDPI, vol. 14(21), pages 1-21, October.
    6. Ziegler, Andreas, 2020. "Heterogeneous preferences and the individual change to alternative electricity contracts," Energy Economics, Elsevier, vol. 91(C).
    7. Lanot, Gauthier & Vesterberg, Mattias, 2021. "The price elasticity of electricity demand when marginal incentives are very large," Energy Economics, Elsevier, vol. 104(C).
    8. Fontana, Magda & Iori, Martina & Nava, Consuelo Rubina, 2019. "Switching behavior in the Italian electricity retail market: Logistic and mixed effect Bayesian estimations of consumer choice," Energy Policy, Elsevier, vol. 129(C), pages 339-351.

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    Keywords

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    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • D10 - Microeconomics - - Household Behavior - - - General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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