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

Ali Hortacsu, Seyed Ali Madanizadeh and Steven Puller ()

American Economic Journal: Economic Policy, 2017, vol. 9, issue 4, 192-226

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.

JEL-codes: D12 D83 L81 L94 L98 M31 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/pol.20150235
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Citations: View citations in EconPapers (136)

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Working Paper: Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market (2015)
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