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Gain or Pain: Does Consumer Activity Reflect Utility Maximisation?

Author

Listed:
  • Yoonhee Tina Chang

    (School of Management, University of Bath)

  • Catherine Waddams Price

    (Centre for Competition Policy, University of East Anglia)

Abstract

Competition Authorities are introducing new informational remedies to help consumers search and switch more actively. Using a specially commissioned data set, and unique direct estimates of the gains, search and switching time which consumers anticipate, we examine the determinants of consumer activity in eight markets. We find that expected costs (and to some extent gains) do influence consumers as a utility maximising model would predict; but that their role is small, and other factors, particularly experience of switching in other markets, are also influential. We conclude that consumers’ confidence in their own estimates is crucial in encouraging market activity.

Suggested Citation

  • Yoonhee Tina Chang & Catherine Waddams Price, 2008. "Gain or Pain: Does Consumer Activity Reflect Utility Maximisation?," Working Papers 08-15, Centre for Competition Policy, University of East Anglia.
    • Handle: RePEc:ccp:wpaper:wp08-15
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP08-15.pdf
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    2. Curtis, John & Devitt, Niamh & di Cosmo, Valeria & Farrell, Niall & FitzGerald, John & Hyland, Marie & Lynch, Muireann & Lyons, Sean & McCoy, Daire & Malaguzzi Valeri, Laura & Walsh, Darragh, 2014. "Irish Energy Policy: An Analysis of Current Issues," Research Series, Economic and Social Research Institute (ESRI), number rs37 edited by FitzGerald, John & Malaguzzi Valeri, Laura.
    3. Wilson, Chris M., 2012. "Market frictions: A unified model of search costs and switching costs," European Economic Review, Elsevier, vol. 56(6), pages 1070-1086.
    4. Defeuilley, Christophe, 2009. "Retail competition in electricity markets," Energy Policy, Elsevier, vol. 37(2), pages 377-386, February.
    5. Wilson, Chris M, 2009. "Market Frictions: A Unified Model of Search and Switching Costs," MPRA Paper 13672, University Library of Munich, Germany.
    6. Chris Wilson, 2009. "Market Frictions: A Unified Model of Search Costs and Switching Costs," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2009-03, Centre for Competition Policy, University of East Anglia, Norwich, UK..

    More about this item

    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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