Equity implications of market structure and appliance energy efficiency regulation
Minimum efficiency standards for products such as appliances are economically efficient when they correct a market failure. Negative ramifications of these standards, particularly for credit constrained or low-income consumers, such as increased prices or decreased choice, are contingent on the pricing behavior of suppliers. We use market point of sales data to estimate the change in price and efficiency of clothes washers following the change in United States minimum efficiency standards in 2004 and 2007, differentiated by market segment. With a relatively narrow confidence interval, the average price of the baseline market segment did not change significantly concurrent with either the 2004 or 2007 standard change, while efficiency of these products increased by 30%, resulting in significant financial savings for consumers of the least expensive baseline products. The highest efficiency products experienced a significant drop in price and increase in efficiency as well, particularly following the 2007 standard change. The results suggest that the effect of this increase in minimum efficiency standards for clothes washers was beneficial to all consumers, but particularly those with lower incomes or renters. Low-income consumers were not priced out of the market, but rather benefited particularly. We offer discussion of potential explanations of these findings.