Switching costs in Netherlands energy markets: Can liberalisation bring benefits to small customers?

Abstract

We use data from a consumer survey to uncover factors deterring consumer switching in liberalised residential energy markets in The Netherlands. We find that actual or perceived switching costs represent an important barrier for switching energy suppliers. This enables incumbent firms to charge higher markups than entrants. We analyse the welfare consequences of switching costs in two scenarios, a pessimistic one in which switching costs remain at the level measured in the survey and an optimistic one in which they decline enough for the market to reach a competitive equilibrium level. The paper concludes with a discussion of policy options for reducing switching costs. © Springer Science+Business Media, LLC 2007.