Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market Academic Article uri icon

abstract

  • Many jurisdictions around the world have deregulated utilities and opened retail markets to competition. However, inertial decision making can diminish consumer benefits of retail competition. Using household-level data from the Texas residential electricity market, we document evidence of consumer inertia. We estimate an econometric model of retail choice to measure two sources of inertia: search frictions/inattention and a brand advantage that consumers afford the incumbent. We find that households rarely search for alternative retailers, and when they do search, households attach a brand advantage to the incumbent. Counterfactual experiments show that low-cost information interventions can notably increase consumer surplus. (JEL D12, D83, L81, L94, L98, M31)

published proceedings

  • AMERICAN ECONOMIC JOURNAL-ECONOMIC POLICY

altmetric score

  • 9.5

author list (cited authors)

  • Hortacsu, A., Madanizadeh, S. A., & Puller, S. L.

citation count

  • 102

complete list of authors

  • Hortacsu, Ali||Madanizadeh, Seyed Ali||Puller, Steven L

publication date

  • November 2017