How Do Consumers Respond to Price Complexity? Experimental Evidence from the Power Sector
53 Pages Posted: 22 Mar 2021
Date Written: December 1, 2020
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: Suggested Citation