Working Paper 13-11

Searching and Switching: Empirical estimates of consumer behaviour in regulated markets

AUTHORS: Catherine Waddams Price, Catherine Webster & Minyan Zhu

ABSTRACT: Governments and agencies increasingly intervene to influence consumer decisions, both to benefit individual outcomes and to improve market functioning. With a unique data set directly incorporating consumers’ own beliefs about potential gains and the time needed to search and switch across eight markets, we identify separately what motivates consumers to search and switch (or not).  Controlling for consumers’ expectations of gain and time needed, intrinsic markets differences and demographic factors, we find persistent variations in consumer responses across individuals and markets. Such variations enable identification of (in)active consumers to target, but challenge the wisdom of imposing  uniform regulatory policies. Overall, we conclude that policies which emphasise potential gains and reduce anticipated switching time are the most likely to increase consumer activity, but that policies tailored to particular markets and target groups are necessary to gain maximum effect.

KEYWORDS: Consumer choice, competition policy, search and switching costs, random parameters (coefficients), Probit

CITATION: Waddams Price, C., Webster, C. & Zhu, M. (2013), 'Searching and Switching: Empirical Estimates of Consumer Behaviour in Regulated Markets', CCP Working Paper 13-11

Policy Brief 13-11

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