Market Liberalization: Price Dispersion, Price Discrimination and Consumer Search in the German Electricity Markets
80 Pages Posted: 24 Sep 2018
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Market Liberalization: Price Dispersion, Price Discrimination and Consumer Search in the German Electricity Markets
Date Written: September 2018
Abstract
We study how consumer search affects pricing in markets with incumbents and entrants using panel data on German electricity retail markets. Consumers observe the baseline price of the incumbent and decide whether or not to search. Incumbent providers can price discriminate between searching and loyal consumers. Empirically we show that local incumbents increase their baseline rate while entrants decrease their tariffs if consumer search increases. Moreover, the incumbent price discriminates more strongly in markets with more consumer search. Using a theoretical model, we show that these pricing patterns are consistent with the strategic interaction of profit-maximizing firms.
Keywords: electricity, price discrimination, price dispersion, search
JEL Classification: D43, D83, L11, L13, Q40
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