Estimate of Search Cost Frictions in the British Electricity Market

Monica Giulietti, Michael Waterson and Matthijs Wildenbeest

No 2010-09, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: This paper studies consumer search and pricing behaviour in the British domestic electricity market following its opening to competition in 1999. We develop a sequential search model in which an incumbent and an entrant group compete for consumers who find it costly to obtain information on prices other than from their current supplier. We use a large data set on prices and input costs to structurally estimate the model. Our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns. We confront our estimates with observed switching behaviour and find they match well.

Keywords: electricity; consumer search; price competition (search for similar items in EconPapers)
JEL-codes: C14 D83 L13 (search for similar items in EconPapers)
Date: 2010-08
New Economics Papers: this item is included in nep-ene, nep-ind and nep-mkt
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:iuk:wpaper:2010-09

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