Who pays the loyalty tax? The relationship between socioeconomic status and switching in Australia's retail electricity markets

The liberalisation of retail electricity markets aimed to benefit consumers through innovation and lower electricity prices. However, well-functioning retail markets require active consumers who are motivated to switch between offers for financial savings or better tailored products. Policymakers di...

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Bibliographic Details
Published in:Energy policy 2022-05, Vol.164, p.112904, Article 112904
Main Authors: Esplin, Ryan, Best, Rohan, Scranton, Jessica, Chai, Andreas
Format: Article
Language:English
Subjects:
Behavioural economics
Consumers
Cost control
Customer satisfaction
Customer switching
Customers
Digitization
Disengagement
Educational attainment
Electricity
Electricity pricing
Energy policy
Energy transition
Innovations
Low income groups
Loyalty
Markets
Policy making
Prices
Renewable energy
Retail competition
Retail electricity market
Socioeconomic disadvantage
Socioeconomic factors
Socioeconomic status
Socioeconomics
Switching
Taxation
Unemployment
Vulnerability
Welfare
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Summary:The liberalisation of retail electricity markets aimed to benefit consumers through innovation and lower electricity prices. However, well-functioning retail markets require active consumers who are motivated to switch between offers for financial savings or better tailored products. Policymakers did not adequately consider the behavioural biases, market complexities and switching costs that have led to customer disengagement. This can have significant welfare implications, particularly if many of the disengaged customers are also vulnerable. In this article, we investigate the relationship between socioeconomic status and customer engagement using household survey data covering the three largest cities in Australia. We find that lower socioeconomic status is associated with lower engagement. Unemployment, lower educational attainment, and lower income are all associated with lower switching rates. Solving this issue is complex and requires a suite of solutions however it is critical that vulnerable, disengaged customers are brought along because the costs of disengagement are likely to increase with digitalisation and the renewable energy transition. •Well-functioning retail markets require active consumers.•Lower SES is associated with disengagement in retail electricity markets.•We should ensure vulnerable consumers do not get left behind.
ISSN:0301-4215
1873-6777
DOI:10.1016/j.enpol.2022.112904