Fossil Fuels and Renewable Energy: Mix or Match?

ABSTRACT This article investigates the influence of technological ownership on pricing strategies and productive efficiency. Our motivation comes from the evolving landscape of electricity markets where firms are transitioning from diversified to specialized portfolios, focusing 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 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.