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Measuring Switching Costs in the Italian Residential Electricity Market

Author

Listed:
  • Marco Magnani

    (DSEA, University of Padova and Italian Regulatory Authority for Energy, Network and the Environment (ARERA))

  • Fabio M. Manenti

    (DSEA, University of Padova)

  • Paola Valbonesi

    (DSEA, University of Padova and Higher School of Economics, National Research University, (HSE-NRU), Moscow)

Abstract
Liberalised retail electricity markets in European countries are still characterised by low consumer engagement, especially where regulated prices are still in place. Using an original dataset of Italian prices and the number of residential consumers, we study the presence and magnitude of switching costs – i.e., costs incurred by consumers when changing supplier and a source of inertia – in the free market. We find that switching from the incumbent to any other competitor in the free market involves high costs – almost as high as yearly energy expenditure – while leaving competitors is less expensive. We also carry out two counterfactual analyses. In the first, we show that consumers would have incurred lower average switching costs over the years had the market been less concentrated; in the second, we simulate how switching costs could evolve once the market is fully liberalised and regulated prices are phased out.

Suggested Citation

  • Marco Magnani & Fabio M. Manenti & Paola Valbonesi, 2022. "Measuring Switching Costs in the Italian Residential Electricity Market," "Marco Fanno" Working Papers 0258, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0258
    as

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    File URL: https://economia.unipd.it/sites/economia.unipd.it/files/20200258_rev.pdf
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    References listed on IDEAS

    as
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    3. Shin, Kong Joo & Managi, Shunsuke, 2017. "Liberalization of a retail electricity market: Consumer satisfaction and household switching behavior in Japan," Energy Policy, Elsevier, vol. 110(C), pages 675-685.
    4. David Martimort & Jérôme Pouyet & Carine Staropoli, 2020. "Use and abuse of regulated prices in electricity markets: “How to regulate regulated prices?”," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(3), pages 605-634, July.
    5. Fontana, Magda & Iori, Martina & Nava, Consuelo Rubina, 2017. "Switching Behavior and the Liberalization of the Italian Electricity Retail Market. Logistic and Mixed Effect Bayesian Estimations of Consumer Choice," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201721, University of Turin.
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    10. Shy, Oz, 2002. "A quick-and-easy method for estimating switching costs," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 71-87, January.
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    12. Fontana, Magda & Iori, Martina & Nava, Consuelo Rubina, 2019. "Switching behavior in the Italian electricity retail market: Logistic and mixed effect Bayesian estimations of consumer choice," Energy Policy, Elsevier, vol. 129(C), pages 339-351.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Massimo Dragotto & Marco Magnani & Paola Valbonesi, 2021. "Consumer inertia and firm incumbency in liberalised retail electricity markets: an empirical investigation," "Marco Fanno" Working Papers 0277, Dipartimento di Scienze Economiche "Marco Fanno".

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    More about this item

    Keywords

    Electricity Retail Markets; liberalisation in Electricity Markets; Switching Cost; Consumer Behaviour; Firm reputation;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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