Measuring Switching Costs in the Italian Residential Electricity Market

Abstract

Residential electricity markets in European countries are still characterized by low consumer engagement, especially where regulated and liberalized markets coexist. Using an original dataset on 2015–2018 prices for the Italian electricity market, augmented with the number of residential consumers, we study the presence and magnitude of switching costs—i.e., time-based and cognitive-based costs on consumers changing providers—in the liberalized market. We find that switching from the incumbent involves high costs—almost as high as the yearly energy expenditure—while switching from competitors is less expensive. We also carry out two counterfactual analyses. In the first, we show that consumers would have incurred lower average switching costs over the years had the market been less concentrated. In the second, we simulate how switching costs could evolve once regulated prices are phased out, and the market is fully liberalized.