Rockets and Feathers: Asymmetric Pricing and Consumer Search – Evidence from Electricity Retailing

In many markets prices react stronger to rising than to falling costs. This asymmetric cost pass-through is still not fully understood, but recent theories suggest that asymmetric adjustments of consumers’ search efforts to rising and to falling prices may help to explain this. I use novel panel data to investigate the interaction of consumer search intensity, pricing and cost pass-through in the German residential electricity markets. I find that consumers search slightly more when prices rise but drastically decrease search efforts when they fall. Moreover, I find direct evidence that cost pass-through heavily depends on consumers’ search efforts.

Heim, Sven (2016), Rockets and Feathers: Asymmetric Pricing and Consumer Search – Evidence from Electricity Retailing, ZEW Discussion Paper No. 16-070, Mannheim.