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Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market

Ali Hortaçsu, Seyed Ali Madanizadeh, Steven L. Puller

NBER Working Paper No. 20988
Issued in February 2015
NBER Program(s):The Environment and Energy Program, The Industrial Organization Program, The Public Economics Program

Many jurisdictions around the world have deregulated utilities and opened retail markets to competition. However, inertial decisionmaking 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: (1) search frictions/inattention, and (2) 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.

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Document Object Identifier (DOI): 10.3386/w20988

Published: Ali Hortaçsu & Seyed Ali Madanizadeh & Steven L. Puller, 2017. "Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market," American Economic Journal: Economic Policy, vol 9(4), pages 192-226. citation courtesy of

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