Do consumers switch to the best supplier?
This paper demonstrates that the ability of consumers to choose the best alternative supplier is limited even in a relatively simple and transparent market. Across two independent datasets from the UK electricity market we find, on aggregate, that those consumers switching exclusively for price reasons appropriated less than a half of the gains available. While such outcomes can be explained by high search costs, the observation that at least 17% of consumers actually reduced their surplus as a result of switching cannot. We rule out an explanation of incorrect demand prediction, and test for others including mis-selling. Copyright 2010 Oxford University Press 2010 All rights reserved, Oxford University Press.
Volume (Year): 62 (2010)
Issue (Month): 4 (October)
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