DP13197 Market Liberalization: Price Dispersion, Price Discrimination and Consumer Search in the German Electricity Markets
We study how consumer search affects pricing in markets with incumbents
and entrants using panel data on German electricity retail markets. Consumers
observe 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 rate
while entrants decrease their tariffs if consumer search increases. Moreover, the
incumbent price discriminates more strongly in markets with more consumer
search. Using a theoretical model, we show that these pricing patterns are
consistent with the strategic interaction of profit-maximizing firms.