The Effect of Default Rates on Retail Competition and Pricing Decisions of Competitive Retailers

The Effect of Default Rates on Retail Competition and Pricing Decisions of Competitive Retailers: The Case of Alberta by David P. Brown† and Andrew Eckert‡ Abstract We investigate the impacts of default regulated products and their design on the development of competitive retail markets and retailers’ pricing decisions. [...] Together, these results suggest that the change to the structure of the RRO have affected the evolution of the market, particularly regarding the number of firms and price dispersion. [...] In particular, due to a large degree of price rigidity observed in the data, we investigate if changes in the default RRO price impacts the timing and direction of price changes of the major retailers’ unregulated products. [...] Further, changes to the stability of the RRO could be expected to reduce the attractiveness of the RRO to risk-averse consumers and increase the level of demand for the unregulated products. [...] A correlation between unregulated fixed-price retail rates and the RRO rates could reflect changes in the costs of providing unregulated retail products, rather than a response of unregulated rates to the demand effects of changes to the RRO.