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Estimation of Search Frictions in the British Electricity Market

Author

Listed:
  • Giulietti, Monica

    (Nottingham University Business School)

  • Waterson, Michael

    (Department of Economics, University of Warwick)

  • Wildenbeest, Matthijs R.

    (Kelley School of Business, Indiana University)

Abstract

This paper studies consumer search and pricing behaviour in the British domestic electricity market following its opening to competition in 1999. We develop a sequential search model in which an incumbent and an entrant group compete for consumers who nd it costly to obtain information on prices other than from their current supplier. We use a large data set on prices and input costs to structurally estimate the model. Our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns. We confront our stimates with observed switching behaviour and nd they match well. Keywords:

Suggested Citation

  • Giulietti, Monica & Waterson, Michael & Wildenbeest, Matthijs R., 2010. "Estimation of Search Frictions in the British Electricity Market," The Warwick Economics Research Paper Series (TWERPS) 940, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:940
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