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

Ali Hortaçsu, Seyed Ali Madanizadeh and Steven Puller ()

No 20988, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many jurisdictions around the world have deregulated utilities and opened retail markets to competition. However, inertial decisionmaking 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: (1) search frictions/inattention, and (2) 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.

JEL-codes: D8 L0 L5 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-com, nep-ene, nep-mfd, nep-mkt and nep-reg
Note: EEE IO PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

Published as Ali Hortaçsu & Seyed Ali Madanizadeh & Steven L. Puller, 2017. "Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market," American Economic Journal: Economic Policy, vol 9(4), pages 192-226.

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