Liberalization of a retail electricity market: Consumer satisfaction and household switching behavior in Japan

Abstract

Policy makers pursue open markets through deregulatory reform based on a belief that they increase economic efficiency and produce benefits for consumers mainly through price reductions. However, the superiority of competition over regulated monopolies is not established. In a liberalized market, consumers exercising their ability to choose a utility provider is a crucial way of shaping the outcomes of deregulatory reform. While achieving a high switching rate is not the ultimate goal of market reform, it is an important tool through which consumers gain from policy form. We use data from a Japanese household survey conducted before and after recent liberalization and find a positive impact of liberalization on consumer satisfaction by enabling consumers to choose an electricity provider. This result indicates that switching can be utility improving by increasing customer satisfaction and underlines the importance of switching behavior in effectively utilizing deregulatory reform. This study also examines a broad set of determinants of provider switching and discusses the policy implications of the empirical results.