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A Measure of Switching Costs in the GB Electricity Retail Market

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  • Salies, Evens

Abstract

In most liberalised electricity retail markets, incumbent firms still hold the majority of residential consumers. This situation focused the attention of regulatory institutions and energy economists on the determinants of consumers switching decisions. Fewer studies have, however, been devoted to measuring switching costs. In the present paper we calculate these costs in the Great Britain electricity retail market by revisiting the model suggested in Shy, O. (2002), A quick-and-easy method for estimating switching costs, International Journal of Industrial Organization, 20, pp. 71–87. The average net cost of switching regional incumbents is €385 while the net cost of switching back to them is negative for customers on standard credit or direct debit plans but positive for prepayment customers.

Suggested Citation

  • Salies, Evens, 2005. "A Measure of Switching Costs in the GB Electricity Retail Market," MPRA Paper 28255, University Library of Munich, Germany, revised Apr 2007.
    • Handle: RePEc:pra:mprapa:28255
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    References listed on IDEAS

    as
    1. Richard Green, 2005. "Electricity and Markets," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 21(1), pages 67-87, Spring.
    2. Waterson, Michael, 2003. "The role of consumers in competition and competition policy," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 129-150, February.
    3. Jackie Krafft & Evens Salies, 2006. "The cost of switching Internet providers in the French broadband industry, or why ADSL has diffused faster than other innovative technologies"," Documents de Travail de l'OFCE 2006-16, Observatoire Francais des Conjonctures Economiques (OFCE).
    4. Waddams Price, Catherine & Bennett, Matthew, 1999. "New gas in old pipes: opening the UK residential gas market to competition," Utilities Policy, Elsevier, vol. 8(1), pages 1-15, March.
    5. Shy, Oz, 2002. "A quick-and-easy method for estimating switching costs," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 71-87, January.
    6. Waterson, Michael, 2003. "Consumers and Competition," The Warwick Economics Research Paper Series (TWERPS) 679, University of Warwick, Department of Economics.
    7. Evens Salies, 2004. "Competition and Market Power in Retail Electricity Supply," SciencePo Working papers Main hal-03592460, HAL.
    8. repec:hal:spmain:info:hdl:2441/962 is not listed on IDEAS
    9. Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 375-394.
    10. repec:hal:wpspec:info:hdl:2441/962 is not listed on IDEAS
    11. Monica Giulietti & Catherine Waddams Price & Michael Waterson, 2005. "Consumer Choice and Competition Policy: a Study of UK Energy Markets," Economic Journal, Royal Economic Society, vol. 115(506), pages 949-968, October.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. László Lörincz & Péter Nagy, 2010. "Switching Costs in Telecommunications: Conclusions from a Hungarian Survey," Chapters, in: Morten Falch & Jan Markendahl (ed.), Promoting New Telecom Infrastructures, chapter 11, Edward Elgar Publishing.
    2. Marco Magnani & Fabio M. Manenti & Paola Valbonesi, 2022. "Measuring Switching Costs in the Italian Residential Electricity Market," "Marco Fanno" Working Papers 0258, Dipartimento di Scienze Economiche "Marco Fanno".

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    More about this item

    Keywords

    Electricity Retail; Switching Costs; Undercut-Proof Property;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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