Measuring Switching Costs in the Italian Residential Electricity Market

Liberalised retail electricity markets in European countries are still characterised by low consumer engagement, especially where regulated prices are still in place. Using an original dataset of Italian prices and the number of residential consumers, we study the presence and magnitude of switching costs – i.e., costs incurred by consumers when changing supplier and a source of inertia – in the free market. We find that switching from the incumbent to any other competitor in the free market involves high costs – almost as high as yearly energy expenditure – while leaving competitors is less expensive. We also carry out two counterfactual analyses. In the first, we show that consumers would have incurred lower average switching costs over the years had the market been less concentrated; in the second, we simulate how switching costs could evolve once the market is fully liberalised and regulated prices are phased out.