Technology Policy and Market Structure

The authors of the paper presented in this Research Seminar show how policies to trigger clean technologies change price competition and market structure. They present evidence from electricity markets, where regulators have implemented different policies to subsidize clean energy. Building on a multi-unit auction model, they show that currently applied subsidy designs either foster or attenuate competition. Fixed, price-independent output subsidies decrease firms' mark-ups. In contrast, designs that subsidize clean output via a regulatory premium on the market price lead to higher mark-ups. They confirm this finding empirically using auction data from the Spanish power market. The empirical results show that the design choice for technology subsidies significantly impacts pricing behavior of firms and policy costs for consumers.