Who Switches Gas Supplier?

Almost half of all UK gas consumers – 10 million households – have switched supplier, according to the energy regulator Ofgem. New research by Dr Monica Giulietti and Professors Catherine Waddams Price and Michael Waterson, published in the October 2005 issue of the Economic Journal reveals why have some consumers switched and others not:
• Among the most important factors is the consumer’s experience in switching suppliers in other areas, such as car insurance, house insurance and telephone supplier. Each of these factors makes you about 10% more likely to switch.
• Unsurprisingly, you are more likely to have switched if price is of prime importance and less likely if you think the reputation of British Gas is a major factor or if you feel they are likely to respond to competitors’ moves.
• It is a myth that old people are less likely to switch. They are less likely to know you can switch, but so long as they are aware, they switch just like everyone else.
• Your income doesn”t matter much either: both poor and rich change supplier.
• Nor does the way in which you pay your bill, for example, prepayment meter users are just as likely to switch supplier (so long as they know they can).

The researchers also find that because a sizeable group of people are unlikely to switch even for significant price differentials, it would be worthwhile for British Gas to maintain gas prices significantly above competitors for years to come, by around £100 a year. In a pessimistic scenario where British Gas maintains prices substantially above competitors, consumers would lose outon average through the competitive process.

Persuading consumers to switch also incurs costs for suppliers. So although the process of introducing competition into domestic energy supply has not been the disaster some predicted, neither is it clear that it has worked as well as optimists thought.

The study, carried out at the Universities of Aston, East Anglia and Warwick University with money awarded to Warwick by the Leverhulme Trust, questioned a carefully selected sample of households in the early years of gas supply competition.

It remains to be seen whether the results are similar now, in particular, during the recent very rapid increases in energy prices most consumers are experiencing. British Gas, for example, has announced its third price rise in two years.

To this end, researchers both at Warwick and at the University of East Anglia”s Centre for Competition Policy are currently investigating aspects of behaviour in the UK energy market, both in terms of suppliers” behaviour and consumer choices.

”Consumer Choice and Competition Policy: A Study of UK Energy Markets” by Monica Giulietti, Catherine Waddams Price and Michael Waterson is published in the October 2005 issue of the Economic Journal. Monica Giulietti is at Aston Business School. Catherine Waddams Price is at the ESRC Centre for Competition Policy at the University of East Anglia. Michael Waterson is at the University of Warwick.