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Irrationality in Consumers’ Switching Decisions: When More Firms May Mean Less Benefit

Chris M. Wilson and Catherine Waddams Price
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Chris M. Wilson: University of East Anglia
Catherine Waddams Price: University of East Anglia

Industrial Organization from University Library of Munich, Germany

Abstract: We report evidence of three types of consumer switching decision errors within the UK electricity market. We identify consumers who do not switch despite substantial available savings, consumers who switch from a cheaper to a more expensive supplier and consumers who switch to a cheaper, but not the cheapest available supplier. Moreover, we find that consumers make more efficient decisions in markets with fewer competitors. This finding is consistent with theories of consumer confusion and “information-overload” rather than other “rational” explanations of consumer mistakes such as perceived differences in firm quality or uncertainty over consumers’ own demand.

Keywords: Consumer choice; Switching costs; Behavioural IO (search for similar items in EconPapers)
JEL-codes: L00 D12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-ene and nep-mic
Date: 2005-09-20
Note: Type of Document - pdf; pages: 28
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