Consumer Protection and Market Efficiency under Energy Price Shocks

Abstract:

Fixed-price electricity contracts insure households against wholesale-price volatility but weaken contemporaneous price signals. We exploit the staggered expiration of long-term fixed-price contracts at a major Italian utility during the European energy crisis. Upon expiration, customers were automatically rolled over to wholesale-indexed pricing, with limited salient advance notice, generating plausibly exogenous variation in exposure to higher electricity costs. The rollover raises bill expenditure by about 27% on average and reduces electricity consumption by 4–6%, implying a bill-expenditure elasticity of approximately -0.113. Consumption adjusts gradually despite the immediate increase in bills. Higher expenditures also increase take-up of utility-provided installment plans and induce modest switching across offers and providers, while effects on outright non-payment are smaller and less precisely estimated. Across estimated income groups, fixed-price protection is larger in euro terms at the top of the distribution, but larger relative to income at the bottom. The results highlight how retail contract design trades off price responsiveness against short-run liquidity protection and consumer inertia during price shocks.

Read more about Jacobo Daniele Bonan here.

How to participate

The seminar is held in meeting room Kongelunden at Rolighedsvej 23.