Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market

Electricity and natural gas consumers have increasingly had the ability to choose their retail provider. This expansion of choice can induce more competitive pricing and lead to choice frictions. In PERC Working Paper 1508, PERC Professor of Free Enterprise, Steven L. Puller, Ali Hortacsu and Seyek Ali Madanizadeh study the causes of consumer inertia by developing an econometric model of household choice. They find that a one percentage point surprise federal funds rate increase reduces the one-day stock return, and that the size of this effect is markedly different depending on the time period under consideration.

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