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The impacts of price regulation on price dispersion in Australia's retail electricity markets

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  • Esplin, Ryan
  • Davis, Ben
  • Rai, Alan
  • Nelson, Tim

Abstract

Price deregulation in Australia's National Electricity Market has led to increased competition and greater price dispersion in retail electricity markets. However, recent increases in electricity prices and concerns around disengaged customers have led policy makers to impose a ‘default offer’ to cap retail electricity prices. In this article, we develop a model that demonstrates the mechanism through which a price cap leads to the withdrawal of the lowest priced offers from the market, in effect reducing the benefits available to customers that ‘shop around’. We calculate a measure of actual price dispersion showing that a compression of offers since the price cap was imposed has reduced the returns from search by 2.3 per cent, or $37 per year on average. We argue that the important issue of vulnerable, disengaged customers on high priced offers is best addressed through non-price regulation policy options, such as an auction for the right to serve customers that are both vulnerable and disengaged.

Suggested Citation

  • Esplin, Ryan & Davis, Ben & Rai, Alan & Nelson, Tim, 2020. "The impacts of price regulation on price dispersion in Australia's retail electricity markets," Energy Policy, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:enepol:v:147:y:2020:i:c:s0301421520305462
    DOI: 10.1016/j.enpol.2020.111829
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    Cited by:

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    3. Kun Cui & Ming Chi & Yong Zhao & Zhiwei Liu, 2025. "Evolutionary Game-Based Regulatory Strategy Optimization for Information Transmission Prices in Integrated Energy Systems," Energies, MDPI, vol. 18(6), pages 1-20, March.
    4. Dormady, Noah & Roa-Henriquez, Alfredo & Hoyt, Matthew & Pesavento, Matthew & Koenig, Grace & Welch, William & Li, Zejun, 2025. "How are retail prices formed in restructured electricity markets?," Energy Economics, Elsevier, vol. 143(C).
    5. Cui, Jian & Yang, Hanfang & Wang, Yifan & Yang, Caili, 2023. "Dynamics of the gas retail market under China's price cap regulation," Energy Policy, Elsevier, vol. 174(C).
    6. Billimoria, Farhad & Mays, Jacob & Poudineh, Rahmat, 2025. "Hedging and tail risk in electricity markets," Energy Economics, Elsevier, vol. 141(C).
    7. Brown, David P. & Eckert, Andrew & Olmstead, Derek E.H., 2022. "Procurement auctions for regulated retail service contracts in restructured electricity markets," Energy Economics, Elsevier, vol. 116(C).
    8. Simone Di Leo & Marta Chicca & Cinzia Daraio & Andrea Guerrini & Stefano Scarcella, 2022. "A Framework for the Analysis of the Sustainability of the Energy Retail Market," Sustainability, MDPI, vol. 14(12), pages 1-28, June.
    9. Simshauser, Paul, 2023. "The 2022 energy crisis: Fuel poverty and the impact of policy interventions in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 121(C).
    10. Jia, Zhijie & Lin, Boqiang, 2023. "Primary fossil energy cost and price regulation in energy processing sectors---the perspective of price regulation market with Chinese characteristics," Resources Policy, Elsevier, vol. 83(C).
    11. Esplin, Ryan & Best, Rohan & Scranton, Jessica & Chai, Andreas, 2022. "Who pays the loyalty tax? The relationship between socioeconomic status and switching in Australia's retail electricity markets," Energy Policy, Elsevier, vol. 164(C).
    12. Simshauser, Paul, 2021. "Vulnerable households and fuel poverty: Measuring the efficiency of policy targeting in Queensland," Energy Economics, Elsevier, vol. 101(C).
    13. Jia, Xinyu & Zou, Hongyang & Xu, Shuxian & Feng, Kuishuang, 2025. "Tolerance vs. Intervention: Strategies for dealing with negative wholesale electricity prices," Energy Policy, Elsevier, vol. 206(C).
    14. Simeone, Christina E. & Lange, Ian & Gilbert, Ben, 2023. "Pass-through in residential retail electricity competition: Evidence from Pennsylvania," Utilities Policy, Elsevier, vol. 80(C).
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