Market Liberalization: Price Dispersion, Price Discrimination and Consumer Search in German Electricity Markets

  • Gugler, K. (Contributor)
  • Sven Heim (Contributor)
  • Maarten Janssen (Contributor)
  • Mario Liebensteiner (Contributor)

Activity: Talk or presentationScience to science

Description

How does the eect of market liberalization depend on consumer search? We an- swer this question by studying the German electricity retail market as an example. We rst construct a simple theoretical model where an incumbent can price dis- criminate between searching and loyal consumers and consumers with idiosyncratic search costs have to decide whether or not to search after observing the baseline price of the incumbent. One result is that if there are relatively more consumers with very low search cost, price dispersion and price discrimination increase with the share of searching consumers. Using a unique panel dataset on spatially varying search queries at major online price comparison websites for the period 2011{2014 we empirically show that local incumbents increase their baseline rate while en- trants decrease their taris as a reaction to more consumer search. Moreover, the incumbent increasingly price discriminates and sets its cheapest tari much lower in reaction to consumer search. Price discrimination allows the incumbent to segment markets according to search intensity, and to simultaneously follow surplus appro- priation for consumers in the non-competitive segment as well as business stealing strategies for consumers in the competitive segment.
Period31 Aug 20182 Sep 2018
Event titleEARIE 2018
Event typeUnkonwn
Degree of RecognitionInternational

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502013 Industrial economics
  • 502034 Regulatory economics