Friday, January 17, 2020
Maarten Pieter Schinkel, University of Amsterdam - Department of Economics; Tinbergen Institute and Lukáš Tóth, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE) address Public Goods Provision by a Private Cartel.
ABSTRACT: To stimulate companies to take corporate social responsibility collectively, for example for fair trade or the environment, their agreements may be exempted from cartel law. To qualify, the public interest must be advanced enough to compensate consumers for anticompetitive price effects. We study the balancing involved in assessing a public interest-cartel. The required compensating public good level decreases in each consumer's willingness to pay, which is contrary to the Samuelson condition. The cartel will provide minimal public good for maximal overcharges. Nevertheless it is typically not sustainable, since those consumers that are damaged most by the cartel price increase, by self-selection also have the lowest appreciation for the public good. The information necessary to tell the rare genuine public interest-defense from cartel greenwashing allows government to provide first-best.