Prices and Concentration: A U-Shape? Theory and Evidence from Renewables - Sciences Po
Preprints, Working Papers, ... (Working Paper) Year : 2024

Prices and Concentration: A U-Shape? Theory and Evidence from Renewables

Abstract

We study firms’ strategic interactions when each firm may own multiple production technologies, each with its own marginal cost and capacity. Increasing industry concentration by reallocating non-efficient capacity to the largest and most efficient firm can decrease market prices as it incentivizes the firm to outcompete its rivals. However, with large reallocations, the standard monotonic relationship between concentration and prices re-emerges as competition weakens due to the rival’s lower capacity. Thus, we demonstrate a U shaped relationship between market prices and industry concentration when firms are diversified. This result does not rely on economies of scale or scope. We find consistent evidence from the Colombian wholesale energy market, where strategic firms are diversified with fossil-fuel and renewable technologies, exploiting exogenous variation in renewable capacities. Our findings not only apply to the green transition but also to other industries and suggest new insights for antitrust policies.
Fichier principal
Vignette du fichier
2024_fioretti_he_and_tamayo_prices_and_concentration_a_u_shape_theory_and_evidence_from_renewables.pdf (1.85 Mo) Télécharger le fichier
Origin Files produced by the author(s)
Licence

Dates and versions

hal-04631762 , version 1 (02-07-2024)

Licence

Identifiers

  • HAL Id : hal-04631762 , version 1

Cite

Michele Fioretti, Junnan He, Jorge Tamayo. Prices and Concentration: A U-Shape? Theory and Evidence from Renewables. 2024. ⟨hal-04631762⟩
80 View
23 Download

Share

More