Sustainability Agreements

Sustainability Agreements

Roman Inderst

Goethe University Frankfurt

Yossi Spiegel

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

Abstract

Recent changes in national competition laws and enforcement guidelines, including those of the European Commission, increase the scope for considering sustainability benefits in the assessment of horizontal cooperations. Abstracting from (standard) arguments that relate to cost sharing, spillovers, or strategic complements, we analyze the implications of such sustainability agreements in an otherwise standard model that, however, endows firms with preferences for sustainability that go beyond its monetization in the marketplace. We find that agreements lead to more sustainability when this is associated mainly with higher marginal but not higher fixed costs or when, in the presence of fixed costs, firms' own sustainability preferences are sufficiently large. Otherwise, agreements lead to lower sustainability. In both cases, however, consumers tend to be worse off, absent other benefits of the agreements. As a quick guidance to antitrust authorities, again absent any other efficiencies, sustainability should increase under a joint agreement if prior to the agreement, firms have shown willingness to increase sustainability even at the cost of becoming less competitive and thereby compromising profits. This is also when the greement further reduces firms' profits, which constitutes another test.