Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market

Hortaçsu, Ali; Madanizadeh, Seyed Ali; Puller, Steven L.

doi:10.1257/pol.20150235

Cited by 176 publications

(126 citation statements)

References 44 publications

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“…Hortacsu et al (2015) find that while households rarely search for alternative retailers in electricity they search more after a "bill shock" in the previous months. Moreover, households attach a brand advantage to the incumbent.…”

Section: Relevant Empirical Literature On Price Dispersionmentioning

confidence: 94%

“…3 In this regard, there is evidence of significant search costs. Giulietti et al (2014) point to high search costs in electricity retail in the UK, and of Hortacsu et al (2015) find that customers of the incumbent only search in about 2% of months or approximately once every 4 5 years.…”

Section: Introductionmentioning

confidence: 96%

“…However, as the number of firms is always above 50 and also consumers have no information about the exact number of firms in the market in the absence of searching we argue that consumers search intensity is unaffected by the number of firms in their local market. 34 See also Hortacsu et al (2015) who point to higher switching rates in the summer month as a reaction of consumers to high electricity bills from air conditioning. 35 Indeed, a disproportionally high share of switchers are new households (Monitoring Report, 2014).…”

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confidence: 99%

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Non-Sequential Search, Competition and Price Dispersion in Retail Electricity

2016

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We investigate the impact of consumer search and competition on pricing strategies in Germany s electricity retail. We utilize a unique panel dataset on spatially varying search requests at major online price comparison websites to construct a direct measure of search intensity and combine this information with zip code level data on electricity tariffs between 2011 and 2014. The paper stands out by explaining price dispersion by differing pricing strategies of former incumbents and entrant firms, which are distinct in their attributable shares in informed versus uninformed consumers. Our empirical results suggest causal evidence for an inverted U-shape effect of consumer search intensity on price dispersion in a clearinghouse environment as in Stahl (1989). The dispersion is caused by opposite pricing strategies of incumbents and entrants, with incumbents initially increasing and entrants initially decreasing tariffs as a reaction to more consumer search. We also find an inverted Ushape effect of competition on price dispersion, consistent with theoretical findings by Janssen and Moraga-González (2004). Again, the effect can be explained by opposing pricing strategies of incumbents and entrants.

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Section: Relevant Empirical Literature On Price Dispersionmentioning

confidence: 94%

Section: Introductionmentioning

confidence: 96%

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confidence: 99%

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Non-Sequential Search, Competition and Price Dispersion in Retail Electricity

2016

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“…Stigler, 1961, Varian, 1980, Stahl, 1989, Burdett and Judd, 1993, Janssen and Moraga-González, 2004, Chandra and Tappata, 2011 and empirical studies (e.g. Sorensen, 2000, Baye et al, 2004, Chandra and Tappata, 2011, Giuletti et al, 2014, Hortacsu et al, 2015, Pennersdorfer et al, 2015, Gugler et al, 2016 suggest. In general, there are two further candidate explanations for the observed price dispersion 2 There may be some form of product differentiation, such as certification of a tariff with a "green" label etc.…”

Section: Puts Itmentioning

confidence: 99%

Rockets and Feathers: Asymmetric Pricing and Consumer Search Evidence from Electricity Retailing

Heim

2016

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Rockets and Feathers: Asymmetric Pricing and Consumer Search -Evidence from Electricity Retailing

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“…Second, final electricity consumers are very insensitive to prices and retail choice opportunities (Hortaçsu et al, 2015). At the same time, such consumers are served by vertically-integrated generating companies.…”

Section: Sequential Marketsmentioning

confidence: 99%

Sequential Markets, Market Power, and Arbitrage

Ito

Reguant

2016

American Economic Review

121

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We develop a framework to characterize strategic behavior in sequential markets under imperfect competition and restricted entry in arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using micro-data from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In the presence of market power, we show that full arbitrage is not necessarily welfare-enhancing, reducing consumer costs but increasing deadweightloss. Terms of use: Documents in EconStor may

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Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market

Cited by 176 publications

References 44 publications

Non-Sequential Search, Competition and Price Dispersion in Retail Electricity

Non-Sequential Search, Competition and Price Dispersion in Retail Electricity

Rockets and Feathers: Asymmetric Pricing and Consumer Search Evidence from Electricity Retailing

Sequential Markets, Market Power, and Arbitrage

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