Monday, November 7, 2022

Production Agreements, Sustainability Investments, and Consumer Welfare

Production Agreements, Sustainability Investments, and Consumer Welfare


Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute

Yossi Spiegel

Tel Aviv University, Coller School of Management; Centre for Economic Policy Research (CEPR); ZEW – Leibniz Centre for European Economic Research

Leonard Treuren

KU Leuven - Department of Economics


Schinkel and Spiegel (2017) finds that allowing sustainability agreements in which firms coordinate their investments in sustainability leads to lower investments and lower output. By contrast, allowing production agreements, in which firms coordinate output yet continue to compete on investments, boosts investments in sustainability and may also benefit consumers. We extend these results to the case where investments affect not only the consumers' willingness to pay, but also marginal cost. We show that sustainability agreements continue to lower investments and output levels, while production agreements increase investments but when they benefit consumers, they are not profitable for firms and will therefore not be formed. This implies that exempting horizontal agreements from the cartel prohibition cannot be relied on to advance sustainability goals and satisfy the competition law requirement that consumers must not be worse off.

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