RBPG has been looking at some of the issues arising from current policy challenges in the energy sector. One of these, which has relevance across economic regulation, is the issue of regulators seeking to reduce the number of tariffs offered by retail suppliers in the market.
A lively debate on this subject is underway to which Professor Stephen Littlechild, amongst others, has contributed. The question is important because in a number of regulatory arenas there have been concerns on the one hand that customers may be confused by a multiplicity of tariffs; and on the other about the consequences of seeking to narrow these choices. For this reason the Forum asked Professor Catherine Waddams from the University of East Anglia to produce some thoughts for us.
It is a stimulating assessment, looking at the behavioural economics which have triggered some of these developments and at customer behaviour in switching. The paper examines the arguments for fairness and carefully assesses the winners and losers from reduction in tariff choice: Switchers will be less well-off than they previously were, whilst those who do not switch should see lower prices depending on how fierce the companies compete with each other.