Green antitrust conundrum: Collusion with social goals

TL;DR

This paper analyzes how regulators can balance environmental goals with competition enforcement when firms may collude under green exemptions, highlighting conditions for allowing collusion or investigating price fixing.

Contribution

It provides a theoretical framework characterizing equilibrium outcomes of collusion under green exemptions and compares commitment versus discretionary investigation policies.

Findings

Collusion is permitted when regulators believe green transition costs are high.

Regulators may prefer commitment to always investigate over discretionary decisions.

The model clarifies conditions under which green collusion benefits social and economic objectives.

Abstract

Recent antitrust regulations in several countries have granted exemptions for collusion aimed at achieving environmental goals. Firms can apply for exemptions if collusion helps to develop or to implement costly clean technology, particularly in sectors like renewable energy, where capital costs are high and economies of scale are significant. However, if the cost of the green transition is unknown to the competition regulator, firms might exploit the exemption by fixing prices higher than necessary. The regulator faces the decision of whether to permit collusion and whether to commission an investigation of potential price fixing, which incurs costs. We fully characterise the equilibria in this scenario that depend on the regulator's belief about the high cost of green transition. If the belief is high enough, collusion will be allowed. We also identify conditions under which a regulator's commitment to always investigate price fixing is preferable to making discretionary decisions.