Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235861 
Year of Publication: 
2021
Series/Report no.: 
DICE Discussion Paper No. 366
Publisher: 
Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE), Düsseldorf
Abstract: 
This paper studies consumers' choice between two different water tariffs. We document a large inaction in a novel setting where customers face a binary decision and receive simple, detailed and personalized information about the financial savings they would obtain if they were to switch water tariff. Our empirical framework separates two sources of inertia: inattention and switching costs. The model estimates that half of the 50 thousand customers in our sample are not aware of the opportunity they are offered and that, conditional on paying attention, median switching costs are £89. A model where all customers are assumed to pay attention instead delivers implausibly high switching costs, with a median of £482. Looking at the characteristics of the households, our results confirm previous findings that areas where households have higher levels of education or the proportion of minorities is lower, display a higher responsiveness to potential savings. The new insight offered by our analysis is that it is the level of attention, and not the switching costs, that differ across levels of education and ethnicity. Our findings suggest that policies aimed at increasing attention can play a central role in fostering competition among suppliers and reducing inequalities.
Subjects: 
inattention
switching costs
tariffs
water
JEL: 
D12
L95
Q25
ISBN: 
978-3-86304-365-0
Document Type: 
Working Paper

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