DP15554 Technology-Neutral vs. Technology-Specific Procurement

Author(s): Natalia Fabra, Juan Pablo Montero
Publication Date: December 2020
Date Revised: February 2021
Keyword(s): auctions, market power, Price regulation, Procurement, quantity regulation, third degree price discrimination
JEL(s):
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15554

An imperfectly-informed regulator needs to procure multiple units of a good that can be produced with heterogeneous technologies at various costs. Should she run technology-specific or technology-neutral auctions? Should she allow for partial separation across technologies (technology banding)? Should she instead post separate prices for each technology? What are the trade-offs involved? We find that one size does not fit all: the preferred instrument depends on the nature of the available technologies, the extent of information asymmetry regarding their costs, the costs of public funds, and the degree of market power. Using Spanish data on recently deployed renewables across the country, we illustrate how our theory can shed light on how to more effectively procure these technologies. Beyond this motivation/application, the question of how to procure public goods in the presence of multiple technologies is relevant for a wide variety of goods, including central banks liquidity, pollution reduction, or land conservation, among others.