I just love the way “free markets” work. Here is a classic example of price “stickiness.”
In Ontario I have the privilege of purchasing my gas from an independent supplier under a fixed term/fixed price contract, or at a fluctuating price from my distributor, Enbridge.
The rational economist in me tells me that it should make no real difference whether I go for a fixed or floating rate, but I did sign up for a soon to expire 5 year term and may have saved money. (They tell me that I did but I’m not so sure.)
I’m currently paying 26 cents (per cubic metre), about the same as the 27 cents Enbridge will charge me if I move from the fixed to the floating rate.
My current supplier offers to renew for 5 years at 38.9 cents, a pretty big price jump but perhaps attractive if gas prices were to increase dramatically more than futures markets seem to suggest.
However, if I cancel my current contract, and then renew with my current supplier as a “new customer”, I can get a 35.9 cent rate, and an even lower rate from the competition. And, the way they have structured things, if I do nothing at all, I get automatically renewed for a year at 42.9 cents – definitely a rip off.
I’m cancelling with my supplier just because they are structuring their offer so badly – if they’d just offered me their new customer rate on renewal I might have just signed up.
Question is – do I sign up with someone for a new term after the current contract expires? And how do I find a supplier who isn’t going to treat me like an idiot?