Pricing in the Swedish Retail Market for Electricity

In 1996, the Swedish energy market was deregulated, and one of the changes was that after the deregulation, the consumer can now choose electricity retailer in the Swedish market. This, however, raises the question of how retailers and consumers have handled the transition from local monopolies to a national market for retail electricity in Sweden. Has the extent of the market changed from the municipality to the nation as wanted by the regulators or not? The results presented in this paper indicate that there are some market imperfections remaining, at least for fixed price contracts, and that price movements for such contracts are not fully parallel as would be the case if the law of one price would hold. However, the size of the market imperfection seem to be quite small, as the price difference between the dominant firms in the market and the day-by-day lowest price offered indicate that the consumer could save on average 5.21 öre per Kwh if always being able to patronize the lowest price contract in the market. For a Swedish household consuming 20 000 Kwh, the savings of always having the cheapest contract would then imply a yearly saving of approximately 1000 SEK per year.