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Estimation of Search Frictions in the British Electricity Market

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  • Giulietti, Monica
  • Waterson, Michael
  • Wildenbeest, Matthijs R.

Abstract

This 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 find 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 estimates with observed switching behaviour and find they match well.

Suggested Citation

  • Giulietti, Monica & Waterson, Michael & Wildenbeest, Matthijs R., 2010. "Estimation of Search Frictions in the British Electricity Market," Economic Research Papers 270998, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:270998
    DOI: 10.22004/ag.econ.270998
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