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Irrationality in Consumers’ Switching Decisions: When More Firms May Mean Less Benefit

Author

Listed:
  • Chris M. Wilson

    (University of East Anglia)

  • Catherine Waddams Price

    (University of East Anglia)

Abstract

We report evidence of three types of consumer switching decision errors within the UK electricity market. We identify consumers who do not switch despite substantial available savings, consumers who switch from a cheaper to a more expensive supplier and consumers who switch to a cheaper, but not the cheapest available supplier. Moreover, we find that consumers make more efficient decisions in markets with fewer competitors. This finding is consistent with theories of consumer confusion and “information-overload” rather than other “rational” explanations of consumer mistakes such as perceived differences in firm quality or uncertainty over consumers’ own demand.

Suggested Citation

  • Chris M. Wilson & Catherine Waddams Price, 2005. "Irrationality in Consumers’ Switching Decisions: When More Firms May Mean Less Benefit," Industrial Organization 0509010, EconWPA.
  • Handle: RePEc:wpa:wuwpio:0509010
    Note: Type of Document - pdf; pages: 28
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0509/0509010.pdf
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    Citations

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    Cited by:

    1. Nils-Henrik M. von der Fehr & Petter Vegard Hansen, 2010. "Electricity Retailing in Norway," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 25-46.
    2. repec:eee:rensus:v:79:y:2017:i:c:p:1380-1391 is not listed on IDEAS
    3. Brennan, Timothy J., 2007. "Consumer preference not to choose: Methodological and policy implications," Energy Policy, Elsevier, vol. 35(3), pages 1616-1627, March.
    4. Vincze, János, 2010. "Miért és mitől védjük a fogyasztókat?. Aszimmetrikus információ és/vagy korlátozott racionalitás
      [Asymmetric information and/or bounded rationality: why are consumers protected and from what?]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 725-752.
    5. Michael G. Pollitt & Irina Shaorshadze, 2013. "The role of behavioural economics in energy and climate policy," Chapters,in: Handbook on Energy and Climate Change, chapter 24, pages 523-546 Edward Elgar Publishing.

    More about this item

    Keywords

    Consumer choice; Switching costs; Behavioural IO;

    JEL classification:

    • L00 - Industrial Organization - - General - - - General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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