Price discrimination and the modes of failure in deregulated retail electricity markets

Abstract

In Australia, as with Great Britain, governments have shown rising concern with the health of competitive residential electricity markets. A core concern is the practice of price discrimination and the rising dispersion of prices. The State of Queensland implemented Full Retail Contestability in 2007, but held a regulated price cap in place until 2016, when it finally deregulated its residential electricity market. Almost simultaneously, the two jurisdictions that pioneered retail price deregulation, Great Britain and Victoria, were questioning their prior policy decision. Queensland makes for a fascinating case study because Southeast Queensland comprises a fully deregulated retail market while Regional Queensland is a regulated monopoly-with common input costs across both zones. Consequently, a regulated monopoly with a uniform tariff and 640,000 customers forms a very large control group, which can be directly compared to the competitive market of more than 1.3 million customers-making such analysis globally unique. Analysis of Queensland market conditions concludes the policy is welfare enhancing. To be clear, rising electricity prices are a problem, but price discrimination is not. The deregulated competitive market is, perhaps unsurprisingly, better at regulating the overall average tariff and consumer welfare has been enhanced by $184 million per annum-with some consumer segments very materially better off. However, certain modes of failure remain, viz. an inter-consumer misallocation problem and lack of transparency vis-à-vis the anchoring of discounts-known as the "discounts off what?" problem. Resolving the inter-consumer misallocation problem is relatively straight forward via ensuring energy retailers (voluntarily) move vulnerable customers onto a Benchmark-equivalent or suitably discounted tariff. Due to the non-linearity of tariffs and the rising mix of discrete metered loads, the latter can be best solved by producing a weighted average of Standing Offers, and using this as the benchmark. Cambridge Working Papers in Economics Faculty of Economics www.eprg.group.cam.ac.uk Price discrimination and the modes of failure in deregulated retail electricity markets EPRG Working Paper 1827

Network capacity charge for sustainability and energy equity: A model-based analysis

“…For example, a household running a two kilowatt (electrical input) reverse cycle air conditioner, and using it during peak times, receives an implicit subsidy equivalent of around $350 per year from other consumers who do not do this" [3]. More examples of tariff discrimination are discussed by Simshauser [12]. Therefore, a smart tariff would incentivize customers who consume less energy during peak times and increase the charges of peak users.…”

Penerapan Strategi Diskriminasi Harga Pada Produk Agrikultur (Studi Kasus Pada Penjual Tanaman Hias di Dusun Dukuh, Desa Kopeng, Kec. Getasan, Kab. Semarang)

“…Pada bidang maskapai penerbangan terdapat diskriminasi harga yang didasarkan pada elastisitas permintaan (Luttmann, 2019). Lalu pada bidang listrik terdapat diskriminasi harga yang didasarkan pada segmen pelanggan (Simshauser, 2018).…”

“…Berdasarkan penjelasan diatas dapat disimpulkan bahwa terdapat penelitian mengenai strategi diskriminasi harga pada sektor jasa yang dilakukan oleh Ricard & Crichton (2017), Waldfogel (2015), Luttmann (2019), Simshauser (2018) akan tetapi masih minim penelitian mengenai strategi diskriminasi harga pada sektor agrikultur. Penulis menemukan penelitian yang menggunakan objek agrikultur tetapi topik yang diteliti tidak fokus pada strategi diskriminasi harga, melainkan mengenai strategi penetapan harga yang mempertimbangkan preferensi peritel dan pelanggan (Chang et al, 2016).…”

Promoting competition and protecting customers? Regulation of the GB retail energy market 2008–2016

“…For explanations why competition is consistent with competition, and indeed can force firms to price discriminate, see Brennan (1990, p 144), Cooper et al (2005), and Baumol (2006, pp 2-3). For a fuller and more recent explanation of how price discrimination is the norm in many competitive markets, see Simshauser (2018). "up to 2.5 million households classed as 'vulnerable' may suffer increased electricity costs and a further 1.9 million may see gas bills increase".…”

“…Green and McDaniel (1998), Otero and Waddams Price (2001), Littlechild (2002), Giulietti et al (2005), Hviid and Price (2012), Waddams Price and Zhu (2016), and elsewhere e.g. Joskow (2005), Littlechild (2006), Simshauser (2018), Simshauser and Whish-Wilson (2017). Some papers have focused on customers' limitations e.g.…”