Limit Pricing and Entry Game of Renewable Energy Firms into the Energy Sector

Willi Semmler, Giovanni Di Bartolomeo (), Behnaz Minooei Fard and Joao Paulo Braga

No 200, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma

Abstract: Governments attempt to provide the energy sector with incentives to replace old technologies with new ones based on renewable energy as the most effective way to combat climate change. Yet in the energy sector prevail fossil fuel incumbents that inhibit renewable energy entrants. Our paper provides a game-theoretic stylization of competition between those two types of firms. Incumbents set prices and entrants respond with quantity adjustments. In the context of a dynamic limit pricing model, we study the entry dynamics in a market in which the dominant firms (fossil fuel energy suppliers) face the entry of a group of competitive fringe firms (renewable energy suppliers) when the dominant firms have easier access to financial markets, but the fringe firms finance their expansion with internal finance. We also investigate the effect of the public support of renewable energy firms through subsidies. Our model is built on Judd and Peterson (1986, JET), but our solutions are obtained through a non-linear model predictive control algorithm. By this technique, we can predict the outcome of the competition between incumbents and entrants and the impact of financial and fiscal policies considering moving-horizon strategies.

Keywords: Global warming; Renewable energy; Limit pricing; Strategic entry game; Non-linear model predictive control (search for similar items in EconPapers)
JEL-codes: D21 D40 D43 (search for similar items in EconPapers)
Pages: 27
Date: 2021-10
New Economics Papers: this item is included in nep-com, nep-ene, nep-env and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.dipecodir.it/wpsap/data/wp200.pdf (application/pdf)

Related works:
Journal Article: Limit pricing and entry game of renewable energy firms into the energy sector (2022)
Working Paper: Limit Pricing and Entry Game of Renewable Energy Firms into the Energy Sector (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sap:wpaper:wp200

Access Statistics for this paper

More papers in Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma
Bibliographic data for series maintained by Luisa Giuriato ().