Does Competition Policy Hinder Climate Action?

Abstract

This article presents a model where the managers of two firms decide about adopting a sustainable production technology. It demonstrates under what circumstances a firm experiences a first mover disadvantage from the adoption of this technology, and it shows how a Pareto improvement can be attained if the managers agree on jointly adopting the sustainable technology. The burden of demonstrating the efficiency gains and the indispensability of the agreement to a competition authority can, however, prevent firms from making sustainability investments. The model contributes to reducing this burden because it provides a checklist of aspects to be considered in this assessment. It also provides a framework to study the prevalence of situations where a sustainability agreement can be used to overcome a first mover disadvantage.

Keywords: Anticompetitive agreement, climate, competition policy, coordination game, first mover disadvantage, sustainability

JEL Classification: D21, K21, L41, Q58