Do Consumers Switch to the Best Supplier ? May 2006

This paper attempts to measure the capacity of consumers to efficiently choose between alternative suppliers. Across two independent datasets from the UK electricity market we find that the subsets of consumers who claimed to be switching exclusively for price reasons appropriated only between 2639% of the maximum gains available through their choice of new supplier. While such behaviour can be explained by the existence of high search costs, the observation that 27-38% of the consumers actually reduced their surplus as a result of switching cannot. A brief analysis appears to reject an explanation involving the suppliers’ use of mis-selling tactics.