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Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market

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  • Ali Hortaçsu
  • Seyed Ali Madanizadeh
  • Steven L. Puller

Abstract

Many jurisdictions around the world have deregulated utilities and opened retail markets to competition. However, inertial decisionmaking can diminish consumer benefits of retail competition. Using household-level data from the Texas residential electricity market, we document evidence of consumer inertia. We estimate an econometric model of retail choice to measure two sources of inertia: (1) search frictions/inattention, and (2) a brand advantage that consumers afford the incumbent. We find that households rarely search for alternative retailers, and when they do search, households attach a brand advantage to the incumbent. Counterfactual experiments show that low-cost information interventions can notably increase consumer surplus.

Suggested Citation

  • Ali Hortaçsu & Seyed Ali Madanizadeh & Steven L. Puller, 2015. "Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market," NBER Working Papers 20988, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20988
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L0 - Industrial Organization - - General
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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