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Does electricity competition work for residential consumers? Evidence from demand models for default and competitive residential electricity services

Agustin J. Ros ()
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Agustin J. Ros: The Brattle Group

Journal of Regulatory Economics, 2020, vol. 58, issue 1, No 1, 32 pages

Abstract: Abstract Residential electricity competition is under investigation in a number of U.S. states due to alleged market imperfections including consumer behavior that is supposedly inconsistent with rational, economic decision-making. In this paper, I examine these issues and use a panel data of distribution utilities in Illinois during the period 2011–2017 to estimate demand models for regulated and competitive electricity services. I find that residential electricity consumers in Illinois are acting in a manner consistent with standard consumer behavior theory, with price elasticity of demand estimates that are generally in line with those in the literature, ranging between − 0.40 and − 0.60. Importantly, I find evidence that customers served by competitive suppliers are sensitive to the regulated default service price. Specifically, I find that a 1% decrease in the regulated default service price will lead to approximately 0.5% of customers served by competitive suppliers switching to the regulated default service. These findings call into question some of the underpinnings of policymakers’ critique of residential electricity competition.

Keywords: Retail electricity competition; Electricity demand and pricing; Residential default service; Econometric modelling; Community choice aggregation (search for similar items in EconPapers)
JEL-codes: C5 L51 L94 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11149-020-09412-1

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