Resistance to change keeps prices high

Almost 50 per cent of households have never switched suppliers despite media coverage of the benefits to be gained from switching, according to research commissioned by consumer champion Which?.

Also, the switching behaviour of consumers varies dramatically between regions of the UK. Households in the North West were most likely to have changed supplier, with 66 per cent of households no longer with their original supplier. Meanwhile only 20 per cent of households from the north of Scotland have opted to switch suppliers.

According to Switch with Which?, switching for the first time away from the incumbent supplier with a former monopoly therefore delivers significant savings - often as much as 25 per cent. Even if there is a reluctance to switch away from their existing supplier, consumers should consider moving to a better tariff offered by the same supplier. On average, households who switched energy suppliers with switchwithwhich.co.uk during 2006 saved £245 a year.

The authors, Stephen Davies, Cheryl Whittaker and Catherine Waddams Price from the ESRC Centre for Competition Policy at the University of East Anglia, argue that low rates of switching result in energy suppliers maintaining a significant market share in their original local monopoly markets where they keep their prices high for customers who have never switched: for British Gas this is nationwide, while for Powergen for example it is the Eastern, East Midlands and North West regions, for npower the Yorkshire, Midland and Northern regions, and for EDF Energy the London, South Eastern and South Western regions.

The authors also indicate that the market structure is such that it is open to price coordination between suppliers (as defined by the UK Competition Commission) and that "these market conditions make it easy for all firms to keep prices well above costs without necessitating explicit collusion" .

They also say "there are now only six significant players and these companies share an interest in keeping prices well above costs. The less competition facing any one firm, the less that firm is inclined, or indeed is required, to compete." This can lead to further disadvantages to consumers in terms of the prices they pay - it affects the consumers who switch who are offered less good deals than in a fiercely competitive market, as well as those who do not.

Chris Gardner from Which?, says "While we encourage Ofgem to scrutinise the practices of energy suppliers, we also urge consumers to take control of their own position. By switching to better deals and capitalising on potential savings of as much as £500, consumers will support the evolution of a buyer's market."