Do Corporate Environmental Contributions Justify the Public Interest Defence?

Nigar Hashimzade and Gareth Myles ()

No 2018-07, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: Corporations make significant direct contributions to environmental improvement and also indirect contributions, through expenditure on process and product innovation. Environmental protection is a public good and so may be under-supplied in a competitive environment. European law requires competition authorities to consider public interest arguments. The public interest defence for allowing a cartel to operate is based on the argument that the additional profitability induces cartel members to make greater environmental contributions that more than offset the welfare loss due to non-competitive pricing. We explore profit-seeking motivations for the corporate environmental expenditures, leaving aside corporate social responsibility concerns. Two motives are considered: environmental improvement leading to reduced production costs, and publicized environmental expenditures boosting brand image. Allowing the operational firms to form a cartel and raise prices above Nash equilibrium levels always reduces environmental quality and consumer welfare. As a consequence, we find no support for the public interest defence.

Date: 2018-06
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Working Paper: Do Corporate Environmental Contributions Justify the Public Interest Defence? (2017)
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