Publications
Publications
- 2025
- HBS Working Paper Series
Prices and Concentration: A U-shape? Theory and Evidence from Renewables
By: Michele Fioretti, Junnan He and Jorge Tamayo
Abstract
We show that when firms compete via supply functions, transferring high-cost
capacity to the largest, most efficient firm—thereby diversifying its production technologies
while increasing concentration—can lower prices by prompting the leader
to expand output and competitors to aggressively defend market shares. However,
large transfers prove anticompetitive, as sizable capacity differences discourage
price undercutting. Exploiting renewable intermittencies in Colombia’s electricity
market, where firms are technology-diversified, we consistently find a U-shape relationship
between prices and concentration. Counterfactually reallocating 30% of
competitors’ high-cost capacities to the leader cuts prices 10%, while larger transfers
raise them, revealing how capacity and efficiency influence market power.
Keywords
Diversified Production Technologies; Concentration Levels; Market Power; Supply Function Equilibrium; Hydropower; Energy Transition; Renewable Energy; Price; Competition; Supply and Industry; Energy Industry; Colombia
Citation
Fioretti, Michele, Junnan He, and Jorge Tamayo. "Prices and Concentration: A U-shape? Theory and Evidence from Renewables." Harvard Business School Working Paper, No. 25-049, April 2025.