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Do Consumers Switch to the Best Supplier?

Author

Listed:
  • Chris Wilson

    () (Department of Economics, University of Oxford)

  • Catherine Waddams Price

    () (Centre for Competition Policy, University of East Anglia)

Abstract

This paper assesses the ability of consumers to choose between alternative suppliers. Across two independent datasets from the UK electricity market we find that consumers switching exclusively for price reasons appropriated only a quarter to half of the maximum gains available. While such behaviour can be explained by high search costs, the observation that 20-31% of the consumers actually reduced their surplus as a result of switching cannot. A brief analysis rejects an explanation involving suppliers' mis-selling tactics. Consumers may need direct protection, as well as good information, if their decisions are insufficiently accurate to engender competitive markets.

Suggested Citation

  • Chris Wilson & Catherine Waddams Price, 2007. "Do Consumers Switch to the Best Supplier?," Working Papers 07-6, Centre for Competition Policy, University of East Anglia.
  • Handle: RePEc:ccp:wpaper:wp07-06
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP07-6.pdf
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    Keywords

    Search costs; switching costs; decision errors; mis-selling;

    JEL classification:

    • L00 - Industrial Organization - - General - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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