Un-cashed switching benefits - Loyalty or lock-ins? The case of district heating in Sweden

Document type: Conference Papers
Peer reviewed: Yes
Author(s): Stefan Hellmer
Title: Un-cashed switching benefits - Loyalty or lock-ins? The case of district heating in Sweden
Translated title: Outnyttjade bytesintäkter - Loyalitet eller inlåsning? Den svenska fjärrvärmemarknaden
Conference name: INFRADAY
Year: 2008
City: Berlin
Organization: Blekinge Institute of Technology
Department: School of Management (Sektionen för management)
School of Management S- 371 79 Karlskrona
+46 455 38 50 00
http://www.bth.se/mam/
Authors e-mail: she@bth.se
Language: English
Abstract: The paper argues for and defines a locked-in consumer as a consumer that is involuntary locked into a system or supplier in spite of an economic incentive to change. A locked-in consumer is therefore not seen as a loyal consumer, which instead is assumed to be loyal to a system or supplier in spite a similar economic gain of switching. Assuming well functioning ex-ante competition the study calculates switching costs for switching from district heating to pellet burners or heat pumps the reason being that district heating is a natural monopoly and has as such been criticized for an eventual abuse of this position. The analysis show that there exists relatively substantial switching benefits of switching from district heating to pellet burning or heat pumps in, for example, residential areas in Stockholm. With limited available relevant markets, district heating being the only alternative, this negative switching cost cannot be capitalized and represents, in the assumed absence of loyal customers, a lock-in effect. The result indicates that we cannot reject the idea that the district heating plants serving residential areas in Stockholm use their dominant position with a reduction of the social welfare as a result.
Summary in Swedish: Artikeln belyser frågan kring användandet av byteskostnader eller bytesintäkter för att beskriva en eventuell inlåsningseffekt för fjärrvärmekunder.
Subject: Economics\Macro Economics
Keywords: Fjärrvärme, Byteskostnader, Bytesintäkter, Loyalitet, Inlåsning
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