Research on Monday Rotterdam

Maarten Pieter Schinkel (University of Amsterdam)
Monday, June 20, 2016

In some jurisdictions, horizontal agreements may be exempted from the 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, using a standard model of public good provision with voluntary private contributions. A cartel may improve upon the under-provision in competitive equilibrium, even though it crowds out private contributions. Contrary to the Samuelson condition, the compensating public good level required decreases in consumers’ willingness to pay. A public interest-cartel is not sustainable beyond a small critical mass of consumers who combine a preference for private consumption with a low willingness to pay for the public good. Orthogonal to Lindahl-pricing, by self-selection the policy targets exactly those consumers. The information requirements for a competition agency to identify a genuine public interest-defense seem prohibitively large by all standards. (Joint with Lukas Toth.)

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