Which dynamic pricing rule is most preferred by consumers?—Application of choice experiment

1 Background In many regions, electricity demand varies significantly based on time of day. The difference in electricity demand between peak and off-peak time periods has increased annually in Japan.1 A decreased load factor implies a high adjustment of electricity supply. Thus, electricity suppliers must increase the electricity price, which might lead to a decrease in consumer welfare. To reduce the demand gap between peak and off-peak time periods, demand-side control of energy use is an important tool to consider. In fact, the Japanese government is considering the introduction of dynamic pricing rules to decrease the electricity demand gap between peak and off-peak time periods.2 Dynamic pricing can reduce electricity demand by increasing the electricity rate when the electricity demand is strong. Electricity rates decrease when electricity demand weakens. The concept of dynamic pricing is based on economic incentives. Many previous studies (for example, Joskow 1975; Chao and Pecks 1996) analyze how to make the effective dynamic pricing rule maximize total welfare. Based on a theoretical analysis, several researchers have implemented field experiments to evaluate the performance of dynamic pricing rules. The empirical results of such field experiments show that