Giving consumers too many choices: a false good idea?

Alexandre Mayol () and Carine Staropoli ()
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Alexandre Mayol: BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Carine Staropoli: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: Electricity and water tariffs are undergoing significant changes due to smart metering, retail competition, and regulatory changes. Consumers now have to choose between different tariffs which are getting more and more complex. Theoretically, these new tariffs aim to use more cost-reflective pricing to incentivise consumers to adopt the right behaviours. However, empirical evidence from real pricing shows that consumers are confused by the complexity. Based on a lab experiment, this paper investigates how electricity and water consumers adopt more or less complicated tariffs and adapt their behaviours accordingly. We show that subjects prefer simple tariffs over complex ones. However, when they receive adequate information about tariffs and appropriate behaviours, they choose more complex tariffs. These results argue in favour of self-selection of tariff forms, in order to account for consumers' different abilities to respond to the price signal. Lastly, we discuss the appropriateness of using a price mechanism to incentivise consumers.

Keywords: Experiment; Electricity; Water; Tariff design; Experimental economics; Microeconomics (search for similar items in EconPapers)
Date: 2021-04
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Citations: View citations in EconPapers (1)

Published in European Journal of Law and Economics, 2021, 51 (2), pp.383-410. ⟨10.1007/s10657-021-09694-6⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03208536

DOI: 10.1007/s10657-021-09694-6

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