How Do Consumers Respond to Price Complexity? Experimental Evidence from the Power Sector

53 Pages Posted: 22 Mar 2021

See all articles by Grant Jacobsen

Grant Jacobsen

University of Oregon - School of Planning, Public Policy, and Management

James I. Stewart

affiliation not provided to SSRN

Date Written: December 1, 2020

Abstract

Spurred in part by growing production from renewable sources and adoption of electric vehicles, dynamic pricing programs for electricity are increasingly being used to influence the shape of residential demand. The most common time-variant prices are time-of-use (TOU) prices, which vary by hour of day, and event-based prices, which take effect during idiosyncratic ``critical'' events. We present evidence on the effects of TOU prices and event-based prices when implemented in isolation versus simultaneously. The key finding is that time-variant prices reduce demand during critical events by 19% when event-based pricing is implemented in isolation, but only 5% when TOU and event-based prices are implemented together. The results suggest that price complexity may dull consumer responsiveness to price signals.

Keywords: price complexity, time-variant pricing, critical peak rebates, time-of-use pricing, electricity, dynamic prices

JEL Classification: Q21, Q54, D12

Suggested Citation

Jacobsen, Grant and Stewart, James I., How Do Consumers Respond to Price Complexity? Experimental Evidence from the Power Sector (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3780728 or http://dx.doi.org/10.2139/ssrn.3780728

Grant Jacobsen (Contact Author)

University of Oregon - School of Planning, Public Policy, and Management ( email )

1280 University of Oregon
Eugene, OR 97403
United States

James I. Stewart

affiliation not provided to SSRN ( email )

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