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Estimate of Search Cost Frictions in the British Electricity Market

Author

Listed:
  • Monica Giulietti

    (Nottingham University Business School)

  • Michael Waterson

    (University of Warwick)

  • Matthijs R. Wildenbeest

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

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

  • Monica Giulietti & Michael Waterson & Matthijs R. Wildenbeest, 2010. "Estimate of Search Cost Frictions in the British Electricity Market," Working Papers 2010-09, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2010-09
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    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2010-09-giulietti-waterson-wildenbeest.pdf
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    Cited by:

    1. 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

    electricity; consumer search; price competition;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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