FINANCIAL PERFORMANCE IN MONOPOLY AND COMPETITION CONTEXTS

CUSTOMER SATISFACTION EFFECT ON FIRM’S

FINANCIAL PERFORMANCE IN MONOPOLY AND

COMPETITION CONTEXTS

CONTENTS

01

Hypothesis & Framework

Methodology

Results

Background & Significance

03 04

Applications

Discussion

BACKGROUND AND SIGNIFICANCE OF THE

SELECTED TOPIC

BACKGROUND AND SIGNIFICANCE OF THE SELECTED TOPIC

PART ONE

Bulk

Generation

Transmission

Distribution

End users

BACKGROUND AND SIGNIFICANCE OF THE SELECTED TOPIC

Monopoly

Unregulated public electricity firms make up a monopoly market

Competition

Regulated private electricity firms make up a competitive market

PART ONE

PART ONE

BACKGROUND AND SIGNIFICANCE OF THE SELECTED TOPIC

PART ONE

BACKGROUND AND SIGNIFICANCE OF THE SELECTED TOPIC

PART ONE

BACKGROUND AND SIGNIFICANCE OF THE SELECTED TOPIC

Goal

Figure out whether and how consumer satisfaction influences regulated firms’ performance, and the

extent of impact compared to firms in perfect competition context.

Research Questions

BACKGROUND AND SIGNIFICANCE OF THE SELECTED TOPIC

Government

A viewpoint to evaluate how efficient the market structure

is in terms of the impact of consumer satisfaction.

Utilities

Improve the financial performance through increasing consumer

satisfaction.

Researchers

Better integrate their financial metrics to

market behavior.

Prediction

Provide power generators with a good prediction of demand based on consumer satisfaction and

price.

PART TWO

H1a: Consumer satisfaction positively influences firm profits in a competitive market, ceteris paribus.

➢ Customer retention ➢ Duration of relationship

➢ WOM

RESEARCH METHODS AND PROCESSES

PART TWO

H1b: Consumer satisfaction positively influences firm profits in a monopoly market, ceteris paribus.

➢ Low customer satisfaction brings complaints.

RESEARCH METHODS AND PROCESSES

PART TWO

H2a: Consumer satisfaction negatively influences the per unit price in a competitive market, ceteris paribus.

➢ Willingness to pay ➢ Low price tolerance ➢ Price sensitivity

H2b: Consumer satisfaction positively influences the per unit price in a monopoly, ceteris paribus.

RESEARCH METHODS AND PROCESSES

PART TWO

H3a: Consumer satisfaction negatively influences the per unit price in a competitive market, ceteris paribus.

➢ Customer loyalty. ➢ Customer retention. ➢ WOM

H3b: Consumer satisfaction positively influences the per unit price in a monopoly, ceteris paribus.

PART THREE

RESEARCH RESULTS AND ITS APPLICATION

PART THREE

Data

COMPUSTAT and combined with data on consumer

satisfaction, which is obtained from the American Customer

Satisfaction Index (ACSI).

RESEARCH RESULTS AND ITS APPLICATION

Unbalanced panel data.

Regression

Test each hypothesis. Normal distribution.

PART THREE

Methods

Fixed/ random effects

Log transformation

RESEARCH METHODS AND PROCESSES

Data Cleaning

Decide to use random effects models for all relationships.

Test hypothesis one by one.

Formulas

Hausman Test

Hypothesis Test

PART THREE

Procedure

Monopoly has 322 observations, 26 firms. Competition has 90 observations,

PART FOUR

RESULTS

PART FOUR

RESULTS

RESULTS

PART FOUR

PART FIVE

CONTRIBUTION

Consumer satisfaction can influence profits of the utilities in the long term. So, consumer satisfaction is meaningful in the

monopoly market.

Profit

Consumer satisfaction does not influence the price set by regulators and utilities.

Price

Improved consumer satisfaction can result in a decrease in sales volume, which is

helpful for energy saving.

Sales volume

PART SIX

Good point

DISCUSSION

The study can be extended to other energy monopoly industries, or countries such as China, where utility firms are regulated by the government.

Limitation

It has failed to compare the effects of consumer satisfaction in both the market structures because of the insignificant results in the competitive structure.

Good point

We included a one-year lag effect of consumer satisfaction, which shows a positive influence on profit.

Limitation

The potential covariates are not just firm size and GDP. The original database has many other variables, but due to time limitations, this paper does not include the other variables.

Future study

PART SIX

(1) the dataset for competition was relatively small, and it is useful to conduct further surveys and update the dataset. Then redo the test and check the significance;

(2) add “environment concerns” as a potential covariate. Aside from satisfaction, the environment is also a factor that decreases consumption of electricity.

(3) change dependent variables: besides price, sales, and profit, researchers can also test the effect on ROI, ROE, and Tobin’s Q, which have been tested as an outcome of consumer satisfaction before but not in the monopoly context;

(4) time series: the examined period is from 1993 to 2012. Researchers can continue the study with later periods or conduct detailed surveys to determine shorter period changes, such as weekly or monthly;