Wednesday, May 16, 2018
Leonard Treuren, University of Amsterdam - Amsterdam School of Economics (ASE) and Maarten Pieter Schinkel, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE) ask Can Collusion Promote Sustainable Consumption and Production? Not Beneficially Beyond Duopoly. Worth downloading!
ABSTRACT: Cartels may be exempted from competition law if they sufficiently promote sustainability objectives. To qualify, the collusive agreement should not fully eliminate competition. We study how remaining and fringe competition affect incentives to produce more sustainably under semi-collusion in an n-firm extension of the duopoly model in Schinkel and Spiegel (2017). We find that more residual competition makes the policy less effective. Coordination of sustainability investments always reduces sustainability and harms consumers, both in complete and partial collusion. The parameter space in the 2-firm production cartel in which consumers benefit from increased sustainability closes for n>2, and does not reopen by maintaining fringe competition beyond 2 out of 3 firms colluding. Residual competition discourages investment incentives more than it tempers the partial cartel's restriction of output. A requirement to compensate consumers decreases sustainability investments below competitive levels.