Using Information to Improve the Effectiveness of Nonlinear Pricing: Evidence from a Field Experiment

This paper reports on the results of two field experiments examining the impact of providing information on how a consumer’s own electricity use translates into its monthly electricity bill on how that consumer responds to a nonlinear retail price schedule for electricity. Across the two utilities, over 2,000 consumers participated in a customized on-line interactive educational program that taught them how their monthly electricity bill was determined from nonlinear retail price schedule they face. Each consumer was also told where their typical consumption monthly places it on this nonlinear pricing schedule. Consumers were also shown how changes in their major electricity-consuming activities would affect their monthly bill under the nonlinear price schedule. Using data from before and after this intervention for consumers that took the educational program (our treatment) and a randomly selected set of control consumers, we estimate the overall treatment effect associated with our educational program as well as a treatment effect for consumers on each specific pricing tier on the nonlinear price schedule during the pre-intervention period. For both utilities, we find that the overall impact of our treatment is a reduction in the consumer’s daily average consumption. In addition, our price tier-specific treatment effect results are that consumers that learn they face a higher marginal price for consuming electricity reduce their electricity consumption and consumers that learn they face the lowest marginal price increase their electricity consumption. These results emphasize that the need to provide timely and actionable information to consumers in order to maximize the effectiveness of nonlinear retail price schemes.