Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

New Research says Electricity customers not seeing expected price benefits of competition

12.04.2007
New research by economists at the University of Warwick, Aston Business School and the Universidad del Rosario Columbia, reveals that electricity customers are not seeing expected price benefits of increased competition and internet price searches in the sector.

The new research is in a paper entitled “Pricing behaviour under competition in the UK electricity supply industry” to be delivered at the Royal Economic Society Annual Conference at the University of Warwick on Thursday 12th April. The researchers looked at prices offered by each of the 6-18 firms active in the domestic electricity market from February 1999 to December 2006. The data was obtained from the Consumer’s Association, OFGEM and Energywatch.

The researchers noted that there were a number of factors in that period that would lead one to expect that customers would benefit from low prices and that there would be low differentials in prices between companies:

- Increased use of the internet by customers to provide price comparisons

- Increased competition between suppliers. In particular new suppliers entering the market place and attempting to take market share by offering prices well below the incumbent suppliers

- Easy mechanisms allowing switching between suppliers.

Surprisingly the researchers found that incumbent suppliers’ electricity prices were much more resistant to change and remained at higher levels than expected. These high incumbent prices also appeared to make it worthwhile for new suppliers entering the market to quote, and do business at, prices that were significantly noncompetitive.

The researchers also found that over the period of study retail electricity prices overall did not fall to the extent of price falls in wholesale prices over the period since a market has developed (OFGEM, 2003).

The researchers further found that if anything the variation in prices being offered between one supplier and another increased over the period of study. High energy users paying by direct debit saw the range of price offerings by non-incumbent suppliers increasing to 30% of the bill, for example. Low energy users paying by direct debit saw an even larger range, up to 35%.

In examining what factors could have produced these surprising results Professor Waterson from the University of Warwick said: “This confirms past studies which have shown that some consumers remain reluctant to switch, even in the face of substantial financial benefits. Incumbent electricity suppliers can therefore charge a premium over new suppliers without losing all of their custom. Moreover, it is important to be careful in choosing an alternative supplier, because it is perfectly possible to switch and yet be worse off, if you choose at random.”

The research team also noted that while fast and increased internet access brings with it the possibility that a large proportion of consumers might avail themselves of the opportunity to compare prices on line and switch to another company there is little evidence that this is a sufficiently widespread practice to have a large effect. Past studies show that although the proportion of searchers using the internet specifically for this purpose has increased, it is still a minority method of gaining information on electricity price offers compared, for example, with information gathered from a representative who calls at the consumer’s home (according to an OFGEM report from 2004).

Peter Dunn | alfa
Further information:
http://www.warwick.ac.uk

More articles from Business and Finance:

nachricht Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

nachricht Europe's microtechnology industry is attuned to growth
10.03.2017 | IVAM Fachverband für Mikrotechnik

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Making lightweight construction suitable for series production

More and more automobile companies are focusing on body parts made of carbon fiber reinforced plastics (CFRP). However, manufacturing and repair costs must be further reduced in order to make CFRP more economical in use. Together with the Volkswagen AG and five other partners in the project HolQueSt 3D, the Laser Zentrum Hannover e.V. (LZH) has developed laser processes for the automatic trimming, drilling and repair of three-dimensional components.

Automated manufacturing processes are the basis for ultimately establishing the series production of CFRP components. In the project HolQueSt 3D, the LZH has...

Im Focus: Wonder material? Novel nanotube structure strengthens thin films for flexible electronics

Reflecting the structure of composites found in nature and the ancient world, researchers at the University of Illinois at Urbana-Champaign have synthesized thin carbon nanotube (CNT) textiles that exhibit both high electrical conductivity and a level of toughness that is about fifty times higher than copper films, currently used in electronics.

"The structural robustness of thin metal films has significant importance for the reliable operation of smart skin and flexible electronics including...

Im Focus: Deep inside Galaxy M87

The nearby, giant radio galaxy M87 hosts a supermassive black hole (BH) and is well-known for its bright jet dominating the spectrum over ten orders of magnitude in frequency. Due to its proximity, jet prominence, and the large black hole mass, M87 is the best laboratory for investigating the formation, acceleration, and collimation of relativistic jets. A research team led by Silke Britzen from the Max Planck Institute for Radio Astronomy in Bonn, Germany, has found strong indication for turbulent processes connecting the accretion disk and the jet of that galaxy providing insights into the longstanding problem of the origin of astrophysical jets.

Supermassive black holes form some of the most enigmatic phenomena in astrophysics. Their enormous energy output is supposed to be generated by the...

Im Focus: A Quantum Low Pass for Photons

Physicists in Garching observe novel quantum effect that limits the number of emitted photons.

The probability to find a certain number of photons inside a laser pulse usually corresponds to a classical distribution of independent events, the so-called...

Im Focus: Microprocessors based on a layer of just three atoms

Microprocessors based on atomically thin materials hold the promise of the evolution of traditional processors as well as new applications in the field of flexible electronics. Now, a TU Wien research team led by Thomas Müller has made a breakthrough in this field as part of an ongoing research project.

Two-dimensional materials, or 2D materials for short, are extremely versatile, although – or often more precisely because – they are made up of just one or a...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Expert meeting “Health Business Connect” will connect international medical technology companies

20.04.2017 | Event News

Wenn der Computer das Gehirn austrickst

18.04.2017 | Event News

7th International Conference on Crystalline Silicon Photovoltaics in Freiburg on April 3-5, 2017

03.04.2017 | Event News

 
Latest News

NASA's Fermi catches gamma-ray flashes from tropical storms

25.04.2017 | Physics and Astronomy

Researchers invent process to make sustainable rubber, plastics

25.04.2017 | Materials Sciences

Transfecting cells gently – the LZH presents a GNOME prototype at the Labvolution 2017

25.04.2017 | Life Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>