Can Collusion Promote Sustainable Consumption and Production? Not Beneficially Beyond Duopoly

28 Pages Posted: 13 Mar 2018 Last revised: 14 May 2018

See all articles by Leonard Treuren

Leonard Treuren

University of Amsterdam - Amsterdam School of Economics (ASE)

Maarten Pieter Schinkel

University of Amsterdam - Amsterdam Center for Law & Economics (ACLE); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: March 1, 2018

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. A production cartel can no longer increase sustainability to the benefit of consumers for n>2, nor by maintaining fringe competition beyond 2 out of 3 firms colluding. The paradox in the policy is that sustainability only increases through a cartel regime that subsequently pockets the social gains. Residual competition discourages investment incentives more than it tempers the (partial) cartel's restriction of output. Requiring the cartel to compensate consumers decreases sustainability investments below competitive levels.

Keywords: Sustainability, cartel, partial collusion, fringe competition

JEL Classification: K21, L13, L40, Q01

Suggested Citation

Treuren, Leonard and Schinkel, Maarten Pieter, Can Collusion Promote Sustainable Consumption and Production? Not Beneficially Beyond Duopoly (March 1, 2018). Amsterdam Law School Research Paper No. 2018-02; Amsterdam Center for Law & Economics Working Paper No. 2018-01. Available at SSRN: https://ssrn.com/abstract=3132323 or http://dx.doi.org/10.2139/ssrn.3132323

Leonard Treuren

University of Amsterdam - Amsterdam School of Economics (ASE) ( email )

Roetersstraat 11
Amsterdam, North Holland 1018 WB
Netherlands

Maarten Pieter Schinkel (Contact Author)

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

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