Debiasing Through Auction? Inertia in the Liberalization of Retail Markets

Abstract

Abstract We analize a market in the process of liberalization. Consumers are biased in favor of the incumbent firm and we assume that they can discover the true value of new suppliers only by switching. In an infinitely-repeated game setting with Bertrand competition, we first show that efficient entry might not take place. We then evaluate the effect of organizing a public auction for assigning consumers to a “default supplier” and show that such a mechanism (which respects the freedom of choice by consumers) would support entry efficiency. However, auctioning might also increase inefficient, although temporary, entry. K EYWORDS : electricity retail, default supplier, entry, competition policy, universal service obligations. JEL Classification: D43, L13, L94 . % Authors are deeply indebted to Eileen Fumagalli, who was part of the original research project (the usual caveat applies). Financial supports by Regione Lombardia and Fondazione Alma Mater (Pavia) are gratefully acknowledged. * Statements and opinions expressed in this article are those of Clara Poletti and do not reflect the official position of the Autorita per l’energia elettrica e il gas.