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Consumer Choice and Competition Policy: a Study of UK Energy Markets* 


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    We acknowledge funding from the Leverhulme Trust for this research, part of a larger project (F215/AX) awarded to the University of Warwick; Catherine Waddams acknowledges support from the University of California Energy Institute. We thank Wiji Arulampalam, Morten Hviid, Jeremy Smith, Mark Stewart, John van Reenen, two anonymous referees and the editor for very useful suggestions, and participants at the Fundacion Empresa Publica, Madrid, the CEPR/ESRC Industrial Organisation Workshop in 2000, the Network of Industrial Economists conference at Royal Holloway and the European Association for Research in Industrial Economics 2001 meeting, the European Economic Association meeting 2002, and seminars at CPB den Haag and the Universities of Cambridge, California (Berkeley and Davis), East Anglia, Edinburgh, Sheffield and Warwick for helpful comments on earlier drafts of this paper. We are especially grateful to Michael Parmar for his major part in the administration of the questionnaire on which this research is based. The authors themselves are responsible for any remaining errors. An earlier version was circulated under the title: ‘Redundant Regulation? Competition and Consumer Choice in Residential Energy Markets’. Monica Giuletti acknowledges the constant support and encouragement of her late father Giuseppe.


Consumer choice is increasingly recognised as a crucial factor in competition policy. To illustrate the implications of such choice we present an investment model of the switching choice in the UK residential natural gas market and examine responses to a specially commissioned survey of nearly seven hundred consumers, identifying search and switching costs. Through an assessment of the savings which consumers say they require to switch supplier, together with an evaluation of consumer switching behaviour, we deduce that the incumbent retained considerable market power, suggesting that some continued regulation may be necessary.