Alert the Inert? Switching Costs and Limited Awareness in Retail Electricity Markets
American Economic Journal: Microeconomics
vol. 15,
no. 1, February 2023
(pp. 74-116)
Abstract
We quantify how switching costs and limited awareness affect consumer inertia in liberalized retail electricity markets by developing and estimating a structural demand model using a novel dataset on electricity contract choices in Belgium. Our data allow us to disentangle different sources of inertia by using a rich combination of macromoments and micromoments. We find that consumers perceive contracts as differentiated and both limited awareness and switching costs hinder efficient choices. Our counterfactuals reveal substantial welfare gains from alleviating both frictions, in particular switching costs, and that a well-regulated monopoly can generate similar consumer surplus as the current deregulated market.Citation
Dressler, Luisa, and Stefan Weiergraeber. 2023. "Alert the Inert? Switching Costs and Limited Awareness in Retail Electricity Markets." American Economic Journal: Microeconomics, 15 (1): 74-116. DOI: 10.1257/mic.20190163Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- L13 Oligopoly and Other Imperfect Markets
- L43 Legal Monopolies and Regulation or Deregulation
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
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