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ESRC Funded Research Groups

  • Consumers
  • The Big Switch Project
  • PharmaStudy Group

The Big Switch Project

In the Spring of 2012 Which?, the UK Consumer Association, and 38 Degrees embarked on the largest collective energy switching exercise undertaken in the UK. The government has perceived this model as a potential means to generate additional consumer activity in the energy market. ‘The Big Switch' (Big-S) provided a unique opportunity to observe participants' actions when they received an offer of a specific energy deal, in particular whether or not they decided to change energy suppliers. The Centre for Competition Policy (CCP) at UEA has built on its experience of studying residential energy switching since the market opened to analyse these decisions.

If you would like to download the report "Who Switched at ‘The Big Switch' and Why?" which provides initial analysis of participants behaviour during the Big-S please click on the following link Who Switched at The Big Switch and Why

As part of the Big-S, participants provided all their energy related information to Which? in advance, mirroring the information needed by a switching website to identify the best offer for any one individual. This information was then aggregated to provide information to the energy companies bidding for the group of consumers represented in the Big-S. After the auction between energy companies took place, each participant was presented with an offer based on the auction outcome and was asked whether they wanted to accept it or not.

The analysis of data from around 110,000 participants enables us to identify how different factors affected whether or not participants accepted the offer made to them. These factors included the size of potential savings, whether those taking part knew the size of their energy bills and how many offers they saw. We asked those who took part for further information about themselves and their attitudes, and have undertaken further analysis for the 21,000 individuals who responded to these requests.

CCP has sought to understand consumer motivation and potential errors through structured questionnaires which asked for information about searching and switching behaviour and their determinants. The Big-S data enables us to observe an actual decision made by consumers when confronted with an offer or offers. Real money was at stake in the switching decision and there was no expectation or wish that the participants should provide a ‘right' answer to an interviewer. The opportunity to observe so many decisions in a realistic context enables a much richer understanding of the factors affecting these decisions to be obtained. The second unique opportunity provided by the Big-S is to investigate the switching decision separately from the rest of the search process involved in changing energy supplier.

CCP continues to undertake analysis of the Big-S dataset and will publish additional research based on this data in due course

Respondent Summary

In the Spring of 2012 Which?, the UK Consumers’ Association, and 38 Degrees, one of the UK’s biggest campaigning communities, embarked on The Big Switch (the Big-S), the largest collective energy switching exercise undertaken in the UK. We want to thank you for taking the time to complete the survey questionnaire(s) on which this research is based, and to give you some headline results from our early analysis. We hope that the research will provide insights into switching behaviour which will contribute to developing policies which make the market work better for all consumers.  At each stage of the research we have maintained the anonymity of yourself as a Big-S participant. If you would like to see more detailed analysis of the data, please click here to download a full technical version of the report.  Here we summarise the results in the report. 

While almost 85% of participants could have saved money by switching, only a quarter chose to do so, even though the average savings were substantial at £120, just over a tenth of the average bill. Potential savings were an important determinant of switching, but many participants who could have saved money did not make the change: out of a total of £16.9m of savings1 offered as part of the Big-S, the total savings captured by those who switched supplier was only £5.5m. Clearly other factors, beyond monetary savings, influence people’s switching decisions. One factor that seems to have deterred switching is seeing more than one offer: increased choice is associated with less switching. In terms of the time required to switch, non-switchers generally thought the process would take longer than the time which the switchers reported it actually had taken them to make the change.

Those participating in the Big-S were not typical of the population as a whole - they were older, better educated and more likely to be male and own their own home.

To identify the factors which are most strongly associated with switching we used a Probit regression model, which allows us to isolate the change in the probability of switching associated with each particular factor after controlling for changes in all the other observable factors. This establishes a correlation, i.e. a statistical relationship, between the factors and the probability of switching, though it does not necessarily show that the factors actually caused a change in the probability of switching.

Monetary Savings: A £10 increase in the annual saving offered was associated with an increase in the probability of switching of around 1.5 percentage points.

Increased Choice: Those who saw two offers were less likely to switch. Being shown two offers instead of one was associated with a 6.8 percentage point drop in the probability of switching (the probability of switching dropped from 31% to 24% on average). Participants who faced an exit fee or would lose cashback by switching were less likely to switch than those who did not. Those who relied on Which? to estimate their energy bill were less likely to switch than those who entered information into the Big-S process from an actual energy bill. We interpret this as indicating that people were more likely to switch if they were confident that the savings they were shown would actually materialise.

Motivation: Individuals who took part in the Big-S to save money were more likely to switch than those who simply took part out of curiosity. The natural explanation for this is that those who wanted to save money had a stronger intention of switching.

Preferences for Particular Suppliers: When selecting their energy supplier people do not just consider the price, other non-price factors may also be part of the decision. Unsurprisingly, individuals who preferred the tariff type offered by their existing supplier were less likely to switch, while individuals who preferred the ethical/environmental stance of the new energy supplier they were offered were more likely to switch.

Contact with Existing Supplier: Individuals who contacted their existing supplier after receiving their Big-S offer and were offered a better deal by their existing supplier were less likely to switch. Perhaps more surprising is that a Big-S participant was more likely to switch if they received an unsolicited offer from their existing provider.

Timing: Those who reported that the Big-S was a busy period were less likely to switch.

Motivations to Switch: Individuals who would switch if they were confident that they were obtaining the best deal available were more likely to switch at the Big-S. Those who said they were likely to switch if they were unhappy with their existing supplier were also more likely to have changed supplier at the Big-S.

Conclusion

The Big-S provided a unique opportunity to observe the detailed decisions of a group of energy consumers faced with a real choice of providers in the residential energy market. Many important insights were gained that can feed into the lively policy debate surrounding the UK’s energy markets. Perhaps most significantly, we find that many consumers do not change supplier, even after investing considerable effort to take part in the Big-S, and when little additional effort is required to capture the significant savings on offer.

We also find that a very small increase in choice, namely one additional offer, appears to be associated with lower switching rates for those who entered the Big-S.

We will continue to analyse the results of the two surveys, and the resulting academic papers will be placed on the CCP website as they are completed. Once again we would like to thank you for taking part in this exercise and providing the valuable responses that form the basis of this study.

1 This figure simply adds together all the positive saving amounts that were offered to individual participants as part of the Big-S

Consumers

The Office of Fair Trading's mission is "to make markets work well for consumers", but the role which consumers themselves play is increasingly seen as crucial to the success of competition policy. CCP's research on the role of consumers in competition and regulation policy analyses both how consumers behave and how they benefit, using theoretical and empirical market analysis, surveys, field and laboratory experiments. These findings have direct implications for designing policy so as to encourage consumers to participate effectively and to receive the greatest benefit.

Many standard economic models - and the policy prescriptions that follow from them - have assumed that consumers act as if they are (close to being) rational. But psychologists and behavioural economists have challenged this assumption: there is much evidence that actual behaviour departs substantially and seemingly systematically from the fully rational standard. A behavioural law and economics approach to the role of consumers in competition law and policy enriches and deepens the analysis and increases the robustness of policy relevant predictions and conclusions.

Allowing for possible behavioural influences, the broad questions in this project, which are approached from theoretical, empirical and experimental perspectives, are:
How is the welfare of consumers affected by the behaviour of firms? How does the behaviour of consumers affect the behaviour of firms and market outcomes? How does the behaviour of consumers affect the efficacies of remedies? How does the behaviour of consumers affect optimal design of competition law and institutions?

The answers to these questions are key to a better design of regulatory policies and remedies and a clearer understanding of when an intervention is possible, necessary and desirable.

As part of this project CCP is collaborating with Which? to analyse information from The Big Switch, a collective switching auction to which more than 280,000 signed up in 2012. 

 

 

PharmaStudy Group

About the group

We are a group of interdisciplinary researchers located at the Centre for Competition Policy at University of East Anglia with common research interests in pharmaceutical industry broadly related to supply-chain distribution, national and EU regulations (e.g. pricing, market entry rules), competition, and intellectual property (IP) rights including patent enforcement and litigation differences across EU.  The group was originally created with two broad objectives:

  1. To foster greater understanding of institutional details related to this industry and to stay abreast of latest developments
  2. To support each other's research by providing critical feedback but also technical assistance where appropriate


To this end the group meets informally but regularly to discuss both academic papers and industry reports.   

The research interest ranges over a series of topics including:

  • Reimbursement, pricing and `claw-backs'
  • Vertical and horizontal mergers in the supply chain
  • Market concentration
  • Parallel trade
  • Dual pricing
  • Import/export quotas
  • Growth
  • Introduction of me-too drugs
  • Authorized generics
  • Pay-to-delay agreements
  • Packaging variety & repackaging
  • Market authorization
  • Patent litigation
  • Country differences   
     

PharmaStudy Group Members

The group members have expertise of the market, of the underlying economic theory and empirical tools and of the related legislative aspect. The group has clear focus on the policy implications of the material discussed.

Farasat Bokhari (Lead) Farasat is an applied micro-economist and a health policy analyst with special research interests in pharmaceuticals.  He has worked extensively on the economics of ADHD and psychostimulant drugs.  His current research is focused on issues related to entry of generics and pay-to-delay deals, introduction of second generation drugs `me-too' drugs, and import from foreign markets.    

Anna Rita Bennato is Post-doctoral Research Fellow in Economics. Her research interests span across different areas of industrial economics and applied microeconomics, with a particular focus on the role of the patent protection in the pharmaceutical industry. In her current research she investigates the role played by the international patent law in pharmaceutical firms' strategies, both from a theoretical and empirical point of view. She has recently published a paper on a top field journal that accounts for investment decisions in R&D under a regime of parallel trade. 

Steve Davies is Professor of Economics. His research broadly investigates different topics within Industrial Organisation, with particular relevance of his work on the determinants of industrial structure and its relationship to the competition process, merger remedies in the pharmaceutical sector and the diffusion of new technologies. He also has extensive experience in evaluating the impact of competition policy, and has advised many authorities worldwide on this aspect. 

Mary Guy is a PhD student conducting research into competition in connection with healthcare provision. Her theses looks at the application of, and interplay between, competition law, public procurement rules, merger control and economic regulation in the Dutch and English healthcare sectors. She is also interested in how activity in the pharmaceutical sector overlaps with this.

Morten Hviid is the Director of CCP and Professor of Law. His research interests lie in procurement issues in health and in the long term residential care market. 

Franco Mariuzzo is lecturer in Econometrics. His research interests are in industrial organisation and applied econometrics. He has studied the firm (multinationals) growth dynamics on the European pharmaceutical industry during the EU enlargement. He proposes a methodology able to link together alternative measures of firm size to study the dynamics of firm growth. 

Arnold Polanski is a Senior Lecturer at UEA with expertise in bargaining theory, mechanism design, game theory and computational economics.  In particular, he is interested in analysis and design of patent and licensing systems, in particular in the context of pharmaceutical industry. 

David Wright is Professor of Pharmacy Practice. His research interest is in the enhancement of medicines use in patients with older people.  Research encompasses the administration of medicines to patients with  dysphagia and medication use in care homes.

Sven Gallasch is a Lecturer in Law. His broader area of research is the misuse of procedural rules in the context of intellectual property rights. In relation to the pharmaceutical industry, Sven's research focuses on pay for delay settlements and early entry agreements between brand and generic companies. As part of his PhD thesis he has developed a European theory of harm for both types of agreements and has devised a novel test for pay for delay settlements under the current EU competition law regime which takes into consideration the peculiarities of the European pharmaceutical sector. 

Conferences and Seminars

In December 2012, the group organised the Winter Network of Industrial Economics conference, where the focus was on Competition Issues in the Health and Pharmaceutical Sectors

Apart from the presentation of the state of the art of the group members, several external speakers have been invited to present their most recent research, on topics related to the pharmaceutical market. Recent presentations include the following speakers.

  • Silvia Appelt (OECD)
  • Margaret Kyle (University of Toulouse)
  • Laura Magazzini (University of Verona)

PharmaStudy Group Reading List;

Topics and Reading List for Spring 2013

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