Balancing the Public Interest-Defense in Cartel Offenses

Posted by Social Science Research Network

Balancing the Public Interest-Defense in Cartel Offenses

Maarten Pieter Schinkel (University of Amsterdam) & Lukáš Tóth (University of Amsterdam)

Abstract:     In some jurisdictions, horizontal agreements may be exempted from the cartel law if they generate certain public interests, such as public health or environmental benefits, that compensate the consumers damaged by their anti-competitive effects. In this paper, 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. However, 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. By self-selection, the policy targets particularly those consumers for taxation. By all standards, the information requirements for an antitrust agency to identify a genuine public interest-defense that meets the standard are prohibitively large.