Fossil Fuels and Renewable Energy: Mix or Match?

Natalia Fabra and Gerard Llobet

No 18458, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper investigates the influence of technological ownership structures on pricing strategies and productive efficiency in oligopoly. Our motivation comes from the evolving landscape of electricity markets where firms are transitioning from diversified to specialized technology portfolios, focusing either on renewable energy or fossil fuels. Our theoretical model demonstrates that diversified firms compete more vigorously than their specialized counterparts. Conversely, specialized firms exhibit higher productive efficiency but only when thermal power sources dominate. The magnitude of our theoretical predictions is assessed through simulations using data from the Spanish electricity market. Methodologically, our analysis offers novel insights for studying multi-unit auctions with cost heterogeneity and privately known capacities.

JEL-codes: L13 L94 (search for similar items in EconPapers)
Date: 2023-09
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