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Consumer Preference Not to Choose: Methodological and Policy Implications

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  • Brennan, Timothy

    () (Resources for the Future)

Abstract

Residential consumers remain reluctant to choose new electricity suppliers. Even the most successful jurisdictions, four U.S. states and other countries, have had to adopt extensive consumer education procedures that serve largely to confirm that choosing electricity suppliers is daunting. Electricity is not unique in this respect; numerous studies find that consumers are generally reluctant to switch brands, even when they are well-informed about product characteristics. If consumers prefer not to choose, opening regulated markets can reduce welfare, even for some consumers who do switch, as the incumbent can exploit this preference by raising price above the formerly regulated level. Policies to open markets might be successful even if limited to industrial and commercial customers, with residential prices based on those in nominally competitive wholesale markets.

Suggested Citation

  • Brennan, Timothy, 2005. "Consumer Preference Not to Choose: Methodological and Policy Implications," Discussion Papers dp-05-51, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-05-51
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:enepol:v:114:y:2018:i:c:p:274-287 is not listed on IDEAS
    2. Peter D. Lunn, 2013. "Telecommunications Consumers: A Behavioral Economic Analysis," Journal of Consumer Affairs, Wiley Blackwell, vol. 47(1), pages 167-189, April.
    3. Dütschke, Elisabeth & Paetz, Alexandra-Gwyn, 2013. "Dynamic electricity pricing—Which programs do consumers prefer?," Energy Policy, Elsevier, vol. 59(C), pages 226-234.
    4. Lanot, Gauthier & Vesterberg, Mattias, 2017. "An empirical model of the decision to switch between electricity price contracts," Umeå Economic Studies 951, Umeå University, Department of Economics.
    5. Poupeau, François-Mathieu, 2009. "Domestic customers and reform of the gas sector. An organisational sociology perspective," Energy Policy, Elsevier, vol. 37(12), pages 5385-5392, December.
    6. Brennan Timothy J., 2014. "Behavioral economics and policy evaluation," Journal of Benefit-Cost Analysis, De Gruyter, vol. 5(1), pages 1-21, January.
    7. Fernando Dias Simões, 2016. "Consumer Behavior and Sustainable Development in China: The Role of Behavioral Sciences in Environmental Policymaking," Sustainability, MDPI, Open Access Journal, vol. 8(9), pages 1-18, September.
    8. Lunn, Pete & Bohacek, Marek & Somerville, Jason & Ni Choisdealbha, Aine & McGowan, Feidhlim, 2016. "PRICE Lab: An Investigation of Consumers’ Capabilities with Complex Products," Research Series, Economic and Social Research Institute (ESRI), number BKMNEXT306.
    9. Daglish, Toby, 2016. "Consumer governance in electricity markets," Energy Economics, Elsevier, vol. 56(C), pages 326-337.
    10. Peter D. Lunn & Marek Bohacek, 2017. "Price transparency in residential electricity: Experiments for regulatory policy," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 1(2), pages 31-37, September.
    11. Ek, Kristina & Söderholm, Patrik, 2008. "Households' switching behavior between electricity suppliers in Sweden," Utilities Policy, Elsevier, vol. 16(4), pages 254-261, December.
    12. Giordano, Vincenzo & Fulli, Gianluca, 2012. "A business case for Smart Grid technologies: A systemic perspective," Energy Policy, Elsevier, vol. 40(C), pages 252-259.
    13. Mitja Kovač & Ann-Sophie Vandenberghe, 2015. "Regulation of Automatic Renewal Clauses: A Behavioural Law and Economics Approach," Journal of Consumer Policy, Springer, vol. 38(3), pages 287-313, September.
    14. Cristina Cattaneo, 2018. "Internal and External Barriers to Energy Efficiency: Made-to-Measure Policy Interventions," Working Papers 2018.08, Fondazione Eni Enrico Mattei.
    15. Nakajima, Tadahiro & Hamori, Shigeyuki, 2010. "Change in consumer sensitivity to electricity prices in response to retail deregulation: A panel empirical analysis of the residential demand for electricity in the United States," Energy Policy, Elsevier, vol. 38(5), pages 2470-2476, May.
    16. O'Sullivan, Kimberley C. & Howden-Chapman, Philippa L. & Fougere, Geoff, 2011. "Making the connection: The relationship between fuel poverty, electricity disconnection, and prepayment metering," Energy Policy, Elsevier, vol. 39(2), pages 733-741, February.
    17. Daglish, Toby, 2015. "Consumer Governance in Electricity Markets," Working Paper Series 4183, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    18. Sirin, Selahattin Murat & Gonul, Mustafa Sinan, 2016. "Behavioral aspects of regulation: A discussion on switching and demand response in Turkish electricity market," Energy Policy, Elsevier, vol. 97(C), pages 591-602.

    More about this item

    Keywords

    electricity markets; deregulation; consumer choice; residential markets;

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General

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