Estimating the Switching Cost in the Korean Residential Electricity Market Using Discrete Choice Model

이산선택모형을 이용한 주거용수용가의 전력서비스 전환비용 추정

  • Published : 2004.06.30

Abstract

Generally, electricity market has monopoly market structure because of need of enormous investment for infrastructure. However, the introduction of competition in network industry as electricity is a tendency of the world with decreasing the effects of economy of scale due to the advancement of technology. Now, electricity industry restructuring is in progress but the competition in electricity retail market is not in force yet in Korea. Whether a effective competition exist or not is very important to policy decision maker who drive restructuring, but there are small numbers of quantitative researches on that. In this study, we estimated the effectiveness of competition in the electricity retail market through switching costs. If switching costs are high, consumers actually can be locked in incumbent firm in spite of introduction of competition. Therefore switching is a critical factor to determine effectiveness of competition and to estimate the size of switching costs quantitatively can proffer the information about whether the competition in the electricity retail market is effective or not in the future. We estimated switching costs using consumer' stated-preference data by conjoint analysis. In according to estimation results, the cost of switching process is not so high, but the relative brand loyalty of an incumbent company is significantly high. And the price is considered as the most important factor choosing an electric service commodity. Based on the empirical results, it is possible to analyze the relationship between suppliers' competitiveness resulted from management efficiency and customers' switching possibilities. The paper therefore provides guidance for suppliers in deciding to enter into retail competition and for policy makers in introducing retail competition. And it has a significance of estimating the switching costs directly.