Competition and Switching in Public Service Markets: Can They Reduce Inequalities?

Abstract

Regulatory reforms across European countries have attempted to increase consumer welfare by introducing competition and choice into public service markets. But it has been questioned whether reforms have benefited all people equally, suggesting that vulnerable groups of service users are worse-off in the provision of services. We assess the relationship between competition and affordability evaluations of electricity and fixed telephony services across 25 European countries among “vulnerable consumers” and their better-off counterparts. Findings show that the vulnerable experience lower levels of affordability. This inequality-gap is not significantly affected by the competitive market structure of the market. However, where competition is translated into a higher frequency of switching across service providers inequalities are smaller and can disappear. These results suggest that demand-side regulation that is successful in boosting consumer switching can reduce inequalities, highlighting the value of regulatory instruments as means to achieve key aims of the welfare state.

Keywords: public infrastructure services, regulation, regulatory welfare state, liberalization, consumer, equality

JEL Classification: A1, A10, D73, E60, H00, H40, I10, I18, J78, L30, L31, L32, L33, L39, M00, D71