Working Paper: CEPR ID: DP13197
Authors: Klaus Gugler; Sven Heim; Maarten Janssen; Mario Liebensteiner
Abstract: We study how consumer search affects pricing in markets with incumbentsand entrants using panel data on German electricity retail markets. Consumersobserve 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 ratewhile entrants decrease their tariffs if consumer search increases. Moreover, theincumbent price discriminates more strongly in markets with more consumersearch. Using a theoretical model, we show that these pricing patterns areconsistent with the strategic interaction of profit-maximizing firms.
Keywords: search; price dispersion; price discrimination; electricity
JEL Codes: D43; D83; L11; L13; Q40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Consumer search intensity (D12) | Incumbent baseline tariffs (F14) |
| Consumer search intensity (D12) | Cheapest online tariff by incumbent (L97) |
| Consumer search intensity (D12) | Overall cheapest tariff by entrants (L97) |
| Consumer search intensity (D12) | Price dispersion (L11) |
| Incumbent baseline tariffs (F14) | Prices for loyal consumers (L42) |
| Cheapest online tariff by incumbent (L97) | Prices for searching consumers (D49) |