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Do consumers switch to the best supplier?

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  • Chris M. Wilson
  • Catherine Waddams Price

Abstract

This paper demonstrates that the ability of consumers to choose the best alternative supplier is limited even in a relatively simple and transparent market. Across two independent datasets from the UK electricity market we find, on aggregate, that those consumers switching exclusively for price reasons appropriated less than a half of the gains available. While such outcomes can be explained by high search costs, the observation that at least 17% of consumers actually reduced their surplus as a result of switching cannot. We rule out an explanation of incorrect demand prediction, and test for others including mis-selling. Copyright 2010 Oxford University Press 2010 All rights reserved, Oxford University Press.

Suggested Citation

  • Chris M. Wilson & Catherine Waddams Price, 2010. "Do consumers switch to the best supplier?," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 647-668, October.
    • Handle: RePEc:oup:oxecpp:v:62:y:2010:i:4:p:647-668
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    File URL: http://hdl.handle.net/10.1093/oep/gpq006
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    JEL classification:

    • L00 - Industrial Organization - - General - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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