DP16881 Sustainability Agreements and Social Norms

Author(s): Roman Inderst, Felix Rhiel, Stefan Thomas
Publication Date: January 2022
Keyword(s): conjoint analysis, Horizontal agreements, sustainability, willingness-to-pay
JEL(s): A13, K21, K32
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16881

Spurred by recent publications of NACs, 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 (though not exclusively) 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 that the willingness-to-pay (WTP) for more sustainable products may depend on social norms to a greater extent than the WTP for products, whose valuation is based mainly or even exclusively on their immediate use value for the consumer. What makes the integration of social norms in WTP challenging, however, is the fact that a sustainability agreement can impact this social norm in that it pushes the market towards more sustainable products, which, in turn, may then change the observable behavior of other consumers. Such repercussions may increase individual WTP for sustainable products in the entire consumer cohort. Absent the sustainability agreement, market segmentation or capacity and resource constraints could hamper the emergence of such a new social norm. Also, with such norm-based externalities, there is a first-mover disadvantage, which deserves recognition in the assessment of sustainability agreements.