Can Collusion Promote Sustainable Consumption and Production? Not Beneficially Beyond Duopoly

Cartels may be exempted from competition law if they sufficiently promote sustainability objectives. To qualify, the collusive agreement should not fully eliminate competition. We study how remaining and fringe competition affect incentives to produce more sustainably under semi-collusion in an n-firm extension of the duopoly model in Schinkel and Spiegel (2017). We find that more residual competition makes the policy less effective. Coordination of sustainability investments always reduces sustainability and harms consumers, both in complete and partial collusion. A production cartel can no longer increase sustainability to the benefit of consumers for n>2, nor by maintaining fringe competition beyond 2 out of 3 firms colluding. The paradox in the policy is that sustainability only increases through a cartel regime that subsequently pockets the social gains. Residual competition discourages investment incentives more than it tempers the (partial) cartel's restriction of output. Requiring the cartel to compensate consumers decreases sustainability investments below competitive levels.