An analysis of price elasticity of demand by region for households in Japan after full liberalization of the electricity market

In the past, electricity used by households and businesses was exclusively sold by monopolistic power companies operating in each region. In March 2000, reforms in the electricity market commenced. The retail sector began liberalization in 2000, culminating in full liberalization in 2016. This means that all consumers became able to choose their power providers. Considering the potential changes in the structure of the electricity market following full liberalization, there is a possibility of changes in price elasticity as well. Therefore, the purpose of this paper is to investigate the impact of full liberalization on the price elasticity of demand for residential. This study uses panel data from 2010 to 2021 of existing power companies except for Okinawa. We examine the price elasticity using the regression analysis based on a logarithmic model. In addition, there are individual differences between power companies so that we will also estimate the model with a fixed effect. We can obtain several results of the analysis as following. (1) After full liberalization, the national average price elasticity increased, indicating intensified market competition. (2) For region, small changes in price elasticity were observed after full liberalization. Especially, urban areas such as Tokyo, Tohoku, Chubu, and Kansai exhibited more significant changes compared to rural areas such as Hokkaido, Hokuriku, Chugoku, and Shikoku. (3) Particularly in the Tokyo, Kansai and Chubu regions, it was identified that the installation of photovoltaic facilities led to a decrease in electricity demand.