Do Consumers Switch to the Best Supplier?

Chris Wilson (christopher.wilson@economics.ox.ac.uk) and Catherine Waddams Price (c.waddams@uea.ac.uk)
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Chris Wilson: Department of Economics, University of Oxford
Catherine Waddams Price: Centre for Competition Policy, University of East Anglia

No 07-6, Working Papers from Centre for Competition Policy, University of East Anglia

Abstract: This paper assesses the ability of consumers to choose between alternative suppliers. Across two independent datasets from the UK electricity market we find that consumers switching exclusively for price reasons appropriated only a quarter to half of the maximum gains available. While such behaviour can be explained by high search costs, the observation that 20-31% of the consumers actually reduced their surplus as a result of switching cannot. A brief analysis rejects an explanation involving suppliers' mis-selling tactics. Consumers may need direct protection, as well as good information, if their decisions are insufficiently accurate to engender competitive markets.

Keywords: Search costs; switching costs; decision errors; mis-selling (search for similar items in EconPapers)
JEL-codes: D83 L00 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2007-04
New Economics Papers: this item is included in nep-com and nep-mic
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Related works:
Journal Article: Do consumers switch to the best supplier? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ccp:wpaper:wp07-06

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