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The Effect of Default Rates on Retail Competition and Pricing Decisions of Competitive Retailers: The Case of Alberta

Author

Listed:
  • David P. Brown

    (University of Alberta, Department of Economics)

  • Andrew Eckert

    (University of Alberta, Department of Economics)

Abstract

We investigate the impacts of default regulated products and their design on the development of competitive retail markets and retailers' pricing decisions. We analyze this question in the context of Alberta's competitive retail electricity market, using data on the prices and characteristics of both regulated and unregulated retail products from July 2006 to March 2017. Our analysis consists of a descriptive discussion of the evolution of market structure in the industry, followed by an econometric analysis of the effect of default prices on unregulated retail prices. We find that as the default product moved from being a long-term stable product, to one based on short-term forward market prices, the number of products and competitors increased substantially. This suggests that the change in the default product was successful at facilitating the development of a competitive retail market. However, our econometric analysis of the pricing of unregulated contracts suggests that competitive retailers may continue to exercise market power by adjusting prices upward in response to short-term changes in the regulated rate, even after controlling for changes in the costs of providing retail products.

Suggested Citation

  • David P. Brown & Andrew Eckert, 2017. "The Effect of Default Rates on Retail Competition and Pricing Decisions of Competitive Retailers: The Case of Alberta," Working Papers 2017-06, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2017_006
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    References listed on IDEAS

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    Cited by:

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    3. Luis R. Boscán, 2020. "European Union retail electricity markets in the Green Transition: The quest for adequate design," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 9(1), January.
    4. Noah Dormady & William Welch & Yufan Ji & Stephanie Pedron & Abdollah Shafieezadeh & Alberto Lamadrid & Matthew Hoyt & Samantha Fox, 2025. "Efficiency and consumer welfare under retail electricity deregulation: Analysis of Ohio's retail choice markets," Journal of Critical Infrastructure Policy, John Wiley & Sons, vol. 6(1), January.
    5. Defeuilley, Christophe, 2025. "Retail electricity markets in Europe: Taking stock, looking ahead," Utilities Policy, Elsevier, vol. 97(C).
    6. Brown, David P. & Eckert, Andrew & Olmstead, Derek E.H., 2022. "Procurement auctions for regulated retail service contracts in restructured electricity markets," Energy Economics, Elsevier, vol. 116(C).
    7. Simone Di Leo & Marta Chicca & Cinzia Daraio & Andrea Guerrini & Stefano Scarcella, 2022. "A Framework for the Analysis of the Sustainability of the Energy Retail Market," Sustainability, MDPI, vol. 14(12), pages 1-28, June.
    8. Yongxiu He & Meiyan Wang & Fengtao Guang, 2019. "Applicability Evaluation of China’s Retail Electricity Price Package Combining Data Envelopment Analysis and a Cloud Model," Energies, MDPI, vol. 13(1), pages 1-21, December.
    9. Köksal, Emin & Ardıyok, Şahin, 2018. "Regulatory and market disharmony in the Turkish electricity industry," Utilities Policy, Elsevier, vol. 55(C), pages 90-98.
    10. Dormady, Noah & Roa-Henriquez, Alfredo & Hoyt, Matthew & Pesavento, Matthew & Koenig, Grace & Welch, William & Li, Zejun, 2025. "How are retail prices formed in restructured electricity markets?," Energy Economics, Elsevier, vol. 143(C).
    11. David P. Brown & David E. M. Sappington, 2022. "Vertical integration and capacity investment in the electricity sector," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(1), pages 193-226, February.

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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