Product Differentiation through Labels: Evidence from EU Energy Relabeling

We study how greater product differentiation in energy label classes affects consumer sales decisions. We exploit the 2021 rescaling of the EU Energy Label, which replaced the crowded A-plus ratings (A+, A++, A+++) with a simpler A-G scale and expanded the number of available classes. Using weekly transaction data of refrigerators and freezers from nine European retailers, we find that the rescaling shifted sales toward more energy-efficient models, primarily in the medium-efficiency segment where differentiation changed the most. In this group, the broad A++ class was split roughly evenly into the new E and F classes, leading to a 7 percentage point shift in market shares from F-to E-class models as a result of the rescaling. This shift reduced the average electricity consumption of sold models by 7.5 kWh per year, or 3.5%. Our findings suggest that reducing the coarseness of energy label classes can be an effective way of conveying efficiency information without increasing cognitive burden.

Working Paper