Competition in public infrastructure services leads to ‘choice-overload’

In past decades, public infrastructure services across the EU such as electricity, water or telephony have been subject to liberalisation reforms. This means that these service markets have been opened up for competition among different public and private service providers. These providers would compete with each other for customers. The aim was that citizens in their new role as customers would receive better services for lower prices.

In his dissertation ‘Essays on the Microfoundations of Completion and Choice in Public Service Delivery’ Jilke examines limitations behind the introduction of these reforms and their assumptions about how people behave within liberalised and increasingly complex public service markets. Do citizens really make completely rational and fully-informed decisions in public services markets where competition and choice have been inserted? And are there any differences between potentially vulnerable groups (those who are worse-off in economic exchange relationships) and the rest?

Less likely to switch
Drawing upon different research methods such as large scale experiments, and cross-national public opinion surveys across 27 EU countries, it was found that introducing greater choice into the delivery of public infrastructure services leads citizens to become less likely to switch among suppliers – a phenomenon referred to as ‘choice-overload’. It suggests that if people receive bad services, but markets are too complex, they do not switch but become locked-in with the services they use. On this basis it can be questioned whether citizens are indeed always able to identify the services that best matches their needs and demands.

Building upon these findings, Jilke’s dissertation shows that potentially vulnerable groups of people (especially those who are less educated) are less likely to switch between service providers, despite being dissatisfied with their services, when compared to the rest. This would represent a serious threat to the equality criterion of the European social model that underlies the provision of public infrastructure services in the EU.

However, it was shown that welfare disparities between potentially vulnerable groups and the rest disappear once there is a lot of switching in national markets on average. This suggests that liberalisation reforms work after all, but only once a competitive market structure is translated into higher national switching rates.