Seyed Ali Madanizadeh
Department of Economics
1126 E. 59th St.
Chicago, IL 60637
Institutional Affiliation: University of Chicago
NBER Working Papers and Publications
|February 2015||Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market|
with , : w20988
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.
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