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Consumer switching in retail electricity markets : is price all that matters?

Ndebelea, T and Marsh, D and Scarpa, R. (2019) 'Consumer switching in retail electricity markets : is price all that matters?', Energy economics., 83 . pp. 88-103.


We model consumer switching in retail electricity markets in New Zealand to identify important determinants of switching and estimate willingness to pay (WTP) for six non-price attributes of electricity services, namely, call waiting time, length of fixed rate contract, renewable energy, loyalty rewards, supplier ownership, and supplier type. The results provide important insights into residential consumer switching, which inform policy and enable suppliers to differentiate their products. The analysis is based on 2688 choice responses generated using an online choice experiment administered to a sample of 224 residential bill-payers. A latent class model is used to distinguish important determinants of switching and preference heterogeneity. We find that non-price attributes of electricity services are significant determinants of consumer switching. Three latent classes with distinct preferences for the attributes are identified. The first class (40%) is mainly concerned about power bills and would switch supplier to save at least NZ$125 per year in power bills, ceteris paribus. This value mainly captures the status quo effect or preference for incumbent traditional suppliers. The second class (46%) exhibits no status quo preference, values all attributes, and particularly dislikes entrants from other sectors. These suppliers must charge NZ$135 per year less than traditional suppliers for a 50% chance of attracting customers. The third class (14%) consists of captive and loyal customers who are unlikely to switch supplier for any realistic power bill savings.

Item Type:Article
Full text:(AM) Accepted Manuscript
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Publisher statement:© 2019 This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Date accepted:15 June 2019
Date deposited:16 September 2019
Date of first online publication:18 June 2019
Date first made open access:18 December 2020

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