Horizontal agreements about the use of a natural resource

Van Moer, Geert (2022): Horizontal agreements about the use of a natural resource.

Abstract

I study a class of agreements between product market rivals to restrict their usage of a natural resource. The natural resource serves as an input for production and can imperfectly be replaced by a basket of other resources. The class of permissible agreements includes various quantitative and pricing instruments that fall short of pure price fixing. Under baseline conditions, namely that firms and consumers do not take into account external effects, I characterize the types of restrictions that succeed in breaking the status quo and the types that do not. Agreements that break the status quo reduce the usage of the natural resource but induce firms to set higher prices in the product market. The effect on prices is what motivates firms to make the agreement. Firms prefer the type of restriction that requires as little reduction in usage of the natural resource as possible in order to induce a given price increase. Implications for competition policy are discussed.

• Item Type: MPRA Paper
• Language: English
• Keywords: sustainability agreements; natural resources; imperfect competition
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization ; Horizontal Anticompetitive Practices; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q01 - Sustainable Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q38 - Government Policy

References

AB Inbev, TNC, & Bluerisk. (2022). A recipe for impact: key ingredients for companies to drive measurable impact in watershed health. Retrieved from https://bit.ly/3wcglqi (May 6, 2022).

Aghion, P., Bénabou, R., Martin, R., & Roulet, A. (2023). Environmental preferences and technological choices: Is market competition clean or dirty? American Economic Review: Insights, 5(1), 1-19. doi: 10.1257/aeri.20210014

Ahmed, R., & Segerson, K. (2011). Collective voluntary agreements to eliminate polluting products. Resource and Energy Economics, 33(3), 572-588. doi: 10.1016/j.reseneeco.2011.01.002

Akhundjanov, S. B., & Muñoz-García, F. (2019). Transboundary natural resources, externalities, and firm preferences for regulation. Environmental and Resource Economics, 73, 333-352. doi: 10.1007/s10640-018-0265-5

Apple (2021). Apple environmental progress report. Retrieved from https://apple.co/37hv2QJ (May 5, 2022).

Buchanan, J. M. (1969). External diseconomies, corrective taxes, and market structure. American Economic Review, 59(1), 174-177.

Castroviejo, G., Jenkins, H., Klein, T., & Rosenboom, N. (2021). When to give the green light to green agreements. Oxera Agenda, September.

CMA. (2023). Green agreements guidance: Guidance on the application of the Chapter I prohibition in the Competition Act 1998 to environmental sustainability agreements. Retrieved from https://assets.publishing.service.gov.uk/media/6526b81b244f8e000d8e742c/Green_agreements_guidance_.pdf (November 7, 2023).

Colombo, L., & Labrecciosa, P. (2018). Consumer surplus-enhancing cooperation in a natural resource oligopoly. Journal of Environmental Economics and Management, 92, 185-193. doi: 10.1016/j.jeem.2018.08.015

d’Aspremont, C., & Jacquemin, A. (1988). Cooperative and noncooperative R&D in duopoly with spillovers. American Economic Review 78, 1133-1137.

Dawson, N. L., & Segerson, K. (2008). Voluntary agreements with industries: Participation incentives with industry-wide targets. Land Economics, 84(1), 97-114.

de Bruyn, Sander, Ahdour, Saliha, Bijleveld, Marijn, de Graaff, Lonneke, Schep, Ellen, Schroten, Arno, & Robert Vergeer. (2017). Handboek milieuprijzen 2017: methodische onderbouwing van kengetallen gebruikt voor waardering van emissies en milieu-impacts. Delft, The Netherlands: CE Delft.

Dewatripont, M., & Tirole, J. (2024). The morality of markets. Journal of Political Economy, 132(8), 2655-2694. doi: 10.1086/729445

Duso, T., Röller, L. H., & Seldeslachts, J. (2014). Collusion through joint R&D: An empirical assessment. Review of Economics and Statistics, 96(2), 349-370.

European Commission. (2021). Competition policy brief on competition policy in support of Europe's green ambition (September 2021). Retrieved from https://data.europa.eu/doi/10.2763/962262 (January 11, 2022).

European Commission (2023). Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal cooperation agreements. Retrieved from https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52023XC0721(01) (November 5, 2023).

Global Cement and Concrete Association. (2021). Concrete future – GCCA 2050 cement and concrete industry roadmap for net zero concrete. Retrieved from https://gccassociation.org/concretefuture/ (May 5, 2022).

Helfand, G. E. (1991). Standards versus standards: the effects of different pollution restrictions. American Economic Review, 81(3), 622-634.

Hirose, K., Lee, S. H., & Matsumura, T. (2020). Noncooperative and cooperative environmental corporate social responsibility. Journal of Institutional and Theoretical Economics, 176(3), 549-571. doi: 10.1628/jite-2020-0035

Hirose, K., & Matsumura, T. (2020). A comparison between emission intensity and emission cap regulations. Energy Policy, 137, 111115. doi: 10.1016/j.enpol.2019.111115

Holland, S. P. (2012). Emissions taxes versus intensity standards: Second-best environmental policies with incomplete regulation. Journal of Environmental Economics and management, 63(3), 375-387. doi: 10.1016/j.jeem.2011.12.002

Holmes, S., Middelschulte, D., & Snoep, M. (Eds.). (2021). Competition law, climate change & environmental sustainability. Concurrences.

Inderst, R., Sartzetakis, E. S., & Xepapadeas, A. (2023). Firm competition and cooperation with norm‐based preferences for sustainability. The Journal of Industrial Economics, 71(4), 1038-1071. doi: 10.1111/joie.12360

Inderst, R. (2024). Firm objectives and the scope for sustainable (green) agreements in antitrust. Available at SSRN 4381098.

Maloney, M. T., & McCormick, R. E. (1982). A positive theory of environmental quality regulation. The Journal of Law and Economics, 25(1), 99-123.

Maxwell, J. W., Lyon, T. P., & Hackett, S. C. (2000). Self-regulation and social welfare: The political economy of corporate environmentalism. The Journal of Law and Economics, 43(2), 583-618.

OECD. (2020). Sustainability and competition. OECD Competition Committee Discussion Paper. Retrieved from https://www.oecd-ilibrary.org/docserver/18e2061c-en.pdf?expires=1730119682&id=id&accname=ocid53021310&checksum=4C56F2B6A9260E1C3271D1F783DDB662 (October 28, 2024).

OECD. (2021). Environmental considerations in competition enforcement. OECD Competition Committee Discussion Paper. Retrieved from https://one.oecd.org/document/DAF/COMP(2021)4/en/pdf (October 28, 2024)

Osborne, M. (2022). Mathematical methods for economic theory. Retrieved from https://mjo.osborne.economics.utoronto.ca/index.php/tutorial/index/1/hom/t (September 25, 2024).

Salop, S. C., & Scheffman, D. T. (1983). Raising rivals' costs. American Economic Review, 73(2), 267-271.

Schinkel, M. P., & Spiegel, Y. (2017). Can collusion promote sustainable consumption and production? International Journal of Industrial Organization, 53, 371-398. doi: 10.1016/j.ijindorg.2016.04.012

Schinkel, M. P., & Treuren, L. (2024). Corporate social responsibility by joint agreement. Journal of Environmental Economics and Management, 123. doi: 10.1016/j.jeem.2023.102897

Schinkel, M. P. (2022). On distributive justice by antitrust: The Robin Hood cartel. Journal of Competition Law & Economics, 18(3), 584-612. doi: 10.1093/joclec/nhab031

Sovinsky, M. (2022). Do research joint ventures serve a collusive function? Journal of the European Economic Association, 20(1), 430-475. doi: 10.1093/jeea/jvab041

Spulber, D. F. (1985). Effluent regulation and long-run optimality. Journal of Environmental Economics and Management, 12(2), 103-116.

Vehviläinen, I. (2023). Greed is good? Of equilibrium impacts in environmental regulation. Journal of Environmental Economics and Management, 122. doi: 10.1016/j.jeem.2023.102892

Vives, X. (1999). Oligopoly pricing: Old ideas and new tools. The MIT Press.