Consumer switching behavior and bundling: an empirical study of Japan’s retail energy markets

Abstract

After the full liberalization of Japan’s retail electricity and city gas markets, marketing strategies such as the bundling of electricity, gas or other services have become very popular. According to the previous theoretical literature, bundling strategies can increase the switching costs incurred by consumers and reduce the probability of consumers switching retail suppliers. This study empirically examines whether retail suppliers’ bundling strategies affect consumers’ switching behavior in Japan’s retail energy markets. Implementing a discrete choice model using micro-data on households in the Kansai region of Japan, this study obtains results, showing that when consumers subscribe for electricity bundled with gas or other services, they are significantly less likely to switch their electricity suppliers. This paper provides policy implications for reviewing market competition and consumer welfare after the full liberalization of Japan’s retail energy markets.