Balancing the Public Interest-Defense in Cartel Offenses

37 Pages Posted: 2 Feb 2016 Last revised: 13 Jan 2017

See all articles by Maarten Pieter Schinkel

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Lukáš Tóth

University of Amsterdam - Amsterdam Center for Law & Economics (ACLE)

Date Written: January 1, 2017

Abstract

Horizontal agreements may be exempted from cartel law if they advance certain public interests, such as public health or the environment, enough to compensate the consumers damaged by their anti-competitive effects. We formalize the balancing of cartel unit price overcharges on a private good against the willingness of its consumers to pay for an accompanying public good. A cartel could improve upon the classic under-provision in competitive equilibrium, even though it crowds out private contributions. We show however that the required compensating public good level in no-contributor economies decreases in each consumer's willingness to pay, which is contrary to the Samuelson condition. With at least one private contributor, the policy can never attain first-best. Moreover, by self-selection the policy asks those individuals with the lowest willingness to pay for the public good to pay most, which is orthogonal to Lindahl-pricing. As a result, the public interest-cartel is typically not sustainable. To identify a genuine public interest-defense requires more information than a competition authority can reasonably be expected to have.

Keywords: cartel, public interest, public good, overcharge, exemption

JEL Classification: H41, K21, L40, Q01

Suggested Citation

Schinkel, Maarten Pieter and Tóth, Lukáš, Balancing the Public Interest-Defense in Cartel Offenses (January 1, 2017). Amsterdam Law School Research Paper No. 2016-05; Amsterdam Center for Law & Economics Working Paper No. 2016-01. Available at SSRN: https://ssrn.com/abstract=2723780 or http://dx.doi.org/10.2139/ssrn.2723780

Maarten Pieter Schinkel (Contact Author)

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
1018 WB Amsterdam
Netherlands
+31 20 525 7132 (Phone)
+31 20 525 5318 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Lukáš Tóth

University of Amsterdam - Amsterdam Center for Law & Economics (ACLE) ( email )

Roetersstraat 11
Amsterdam, North Holland 1018 WB
Netherlands

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