Estimation of Search Frictions in the British Electricity Market1. (December 2014)

• Record Type: Journal Article
• Authors: Giulietti, Monica; Waterson, Michael; Wildenbeest, Matthijs
• Is Part Of: Journal of industrial economics. Volume 62:Number 4(2014:Dec.)
• Page Start: 555
• Page End: 590
• Publication Date: 2014-12
• Subjects: Industrial organization (Economic theory) -- Periodicals; 338
• DOI: 10.1111/joie.12062
• Languages: English
• ISSNs: 0022-1821

Abstract

<abstract abstract-type="main"> <title> <x xml:space="preserve">Abstract</x> </title> <p>This paper studies consumer search and pricing behavior in the British domestic electricity market following its opening to competition in 1999. We develop a sequential search model in which an incumbent and an entrant group compete for consumers who find it costly to obtain information on prices other than from their current supplier. We use a large data set on prices and input costs to structurally estimate the model. Our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns. We confront our estimates with observed switching behavior and find they match well.</p> </abstract>