Sustainability Agreements and Social Norms

Abstract

Abstract Spurred by recent publications of National Competition Agencies, there is an ongoing debate on whether and, if so, how competition law and its enforcement shall give due consideration to concerns of sustainability, notably environmental sustainability. With respect to horizontal agreements, we define circumstances where sustainability concerns may indeed warrant a somewhat modified approach for the assessment of consumer welfare implications of a market related measure. We posit a feedback-effect on the willingness-to-pay for more sustainable products when a horizontal agreement leads other consumers to change their behavior. The underlying reason for this stems from the non-use value associated with sustainability and from its relation to social norms. In such scenarios, there can be a first-mover disadvantage for a firm who would unilaterally introduce a more sustainable product, which may justify horizontal cooperation. More generally, we argue that the construction of counterfactuals, in particular over a longer time horizon, may prove particularly challenging in a competitive assessment of sustainability claims. We also document the feedback effect arising from other consumers’ behavior with data that the Dutch Competition Authority gathered for its “Chicken of Tomorrow” case.