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: D12 L00 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2005-09-20
New Economics Papers: this item is included in nep-cbe, nep-ene and nep-mic
Note: Type of Document - pdf; pages: 28
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpio:0509010

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