American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market
American Economic Journal: Economic Policy
vol. 9,
no. 4, November 2017
(pp. 192–226)
(Complimentary)
Abstract
Many jurisdictions around the world have deregulated utilities and opened retail markets to competition. However, inertial decision making can diminish consumer benefits of retail competition. Using household-level data from the Texas residential electricity market, we document evidence of consumer inertia. We estimate an econometric model of retail choice to measure two sources of inertia: search frictions/inattention and a brand advantage that consumers afford the incumbent. We find that households rarely search for alternative retailers, and when they do search, households attach a brand advantage to the incumbent. Counterfactual experiments show that low-cost information interventions can notably increase consumer surplus.Citation
Hortaçsu, Ali, Seyed Ali Madanizadeh, and Steven L. Puller. 2017. "Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market." American Economic Journal: Economic Policy, 9 (4): 192–226. DOI: 10.1257/pol.20150235Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- L81 Retail and Wholesale Trade; e-Commerce
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- M31 Marketing
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