Sustainability and carbon neutrality have become one of the world's foremost priorities.
As a result, companies may potentially employ sustainability agreements with their competitors,
for example, to standardise packaging so it is more easily recycled,
or to share information regarding suppliers that have more environmentally-friendly processes.
However, these agreements may fall afoul of competition and antitrust laws,
which may very well cause businesses to dial back on joint initiatives that might help to address climate change.
In July 2023 and October 2023 respectively,
the European Commission and the UK Competition and Markets Authority
have released guidelines to differentiate between sustainability agreements that are anti-competitive
and those which are permissible.
In this episode, we will be discussing the potential intersections
between competition law and sustainability agreements.
Welcome to the Oxford Undergraduate Law Podcast,
where we discuss the law and its relationship with society.
I'm Juliette,
and I'm Rach, and we are your podcast editors.
We will platform academics, practitioners and experts from different backgrounds on this podcast.
Today we are joined by Benoit Durand, a partner at RBB Economics.
RBB Economics is a global leader in competition economics,
which works alongside law firms to advise companies in the context of competition law investigations
by enforcers or in the context of litigation in front of courts.
He has a PhD in economics from Boston College,
and has over 20 years of experience in competition economics,
particularly in the context of competition law investigations.
He has advised companies like Nespresso, Google, Amazon, British Airways and DuPont, among others.
He was previously the Director of Economic Analysis at the UK's Competition Commission,
which is now part of the UK Competition and Markets Authority in London,
and a member of the Chief Economist Team at the Directorate-General for Competition
at the European Commission in Brussels.
So thank you so much for joining us today.
First off, perhaps you could start with what are sustainability standards
or sustainability agreements that we're concerned with in this context?
So why are they important and what do they look like in the market?
Well, first of all, thank you very much for having me.
I'm delighted to speak to you and to discuss this, the concern,
or at least discuss this very important topic, sustainability, standard and environmental sustainability,
and how this interplays with competition law,
because there's been a lot of talks about the relationship, let's say, between sustainability.
Sustainability goes on the one hand and the objective of competition policy on the other hand.
And in Europe in particular, and also the UK, since the UK is outside Europe,
I'm going to use the term Europe as political definition.
So the European Union, when I refer to Europe, and then the UK will be outside that.
So both the CMA in the UK and the European Commission for the European Union
developed some document to explain how they plan to adapt, if anything,
competition policy to achieve sustainability objectives or environmental sustainability objectives.
So now your question, sorry, so a bit of a long introduction to come back to your question
and to at least cast your question in that context.
What are sustainability standards? What are they important?
And let me say that first, I'm not an expert in sustainability.
I'm not an environmental economist. I'm a competition economist.
So your audience will have to realize that what I say is probably has more authority
when it comes to competition policy than it has when it comes to environmental objectives.
Now, clearly there is an objective, a policy objective, a global objective to achieve,
you know, to protect the environment. And there is the notion of sustainable development,
which is essentially to limit damages to the environment and make sure
sources are preserved for future generations. So that's very, very broad.
Now, there is no clear definition what sustainability means really,
because sustainability could mean many things.
But if we start focusing on environmental sustainability,
we have a bit more tangible what we are talking about.
So in Europe, the European Union has clearly set out a very clear objective.
And one objective, which is set out in the Green Deal, EU Green Deal,
is that by 2050, the European Union should be carbonized.
So there should be net zero greenhouse gas emissions. So we should be at zero, right?
So that's pretty clear what that objective is.
So that as a standard, we get to give it to the Commission
and that they give us a very clear objective and a clear metric to abide by.
But that's basically to set the scene broadly.
Yeah. So I think we've set out why sustainability standards are important
and I guess what the goals are.
So what do you think then are the aims and concerns of competition law in contrast?
OK, so I'm not a lawyer, but I have a good understanding of what the objective
of competition law should be, at least from an economics perspective,
which may be a different perspective.
But at least if we start like this, broadly speaking,
the objective of competition law is that we are working in market economies.
OK, so if you think about, I'm going to simplify things,
but you could think of two ways of organizing the economy.
You can have market economy or planet economy.
I think the planet economy is kind of dead
and we are more in a system where the economy is organized around markets,
even though there are policy interventions, which can actually be justified.
Now, the objective of competition law in this context is to tame the excessive use of market power.
What does that mean? It means firms may have market power,
they have the ability to increase prices above cost.
OK, and why is it not a good thing?
It's not a good thing because it means that markets are not working very well,
they are not resulting in an outcome where resources are located efficiently.
We could actually produce more because some consumers would be willing to pay
even a price that is still above the cost of the product that you could produce.
So in many ways, market power is a manifestation of market failure.
OK, hence it's important that whenever possible, that market power be tamed,
so that there is more production and more consumption at lower prices,
which is very good for economic progress.
Now, market power in and of itself is not always bad,
and I like to make it very clear so that the audience doesn't come out and say,
oh, market power is terrible, we need to tame it to restrict it.
Well, the thing is market power can be acquired by a company
because they are just the best in the market, just to put it simply.
If a company develops a product or services that is just more popular
and where customers go to, then it's almost normal that it wins the market,
or at least it's got a large market share on the market,
and we don't want actually to prevent that kind of behavior or conduct
because the company is invested into developing a product or services
that actually is the winning service or winning product,
which actually benefits society.
So we need to be a bit careful.
Now, they are, and this is where competition law comes,
they are ways into which company, firms, may actually do things,
and I'll come to be a bit more specific in a minute,
to actually increase market power or exercise market power,
which is not really, as the lawyers would call it, competition on the merit.
They are not really exercising market power because they have offered a product
that is unique or because of business acumen,
it's more they're doing something to restrict so-called competition.
And so in that sense, competition law has several instruments
to limit this kind of unjustified exercise of market power.
So first one, which is very easy to understand, is cartel agreements.
Cartel agreements are essentially agreements between firms
so that they restrict competition.
They come together around the table, like we do here today in the room,
and agree not to compete against each other,
possibly even fixing prices so that they don't undercut each other.
Clearly, the objective of this agreement is to actually raise prices
and therefore increase the gap between price and cost,
and this gives rise to an unduly use of exercise market power.
So that's really bad for society, it's bad for the allocation of resources,
it's bad for consumers.
And authorities, at least in Europe and the UK,
have, and even in the US and North America,
they have instruments to fight cartels,
and in Europe it's called Article 101 of the Treaty,
which is basically setting out that some agreements are restricting competition,
and cartel agreements are certainly one of them.
Now, there are other types of agreements that also restrict competition
that are not obviously restricting competition,
but need or require nevertheless some assessment.
So there are other types of agreements between competitors
which may restrict competition, but which may not be a cartel.
So the grey zone is, for example, the exchange of information.
Exchange of information happens between competitors
because they want to establish new standards,
it's actually useful to provide information about how the industry operates.
And so the type of information may actually be quite important here
to make sure that the agreement does not turn into a cartel agreement,
or there may be also, I always want to agreement between just a subset of competitors.
You know, people may do joint ventures, they may do joint research programs,
so those are also, they could restrict competition, or at least part of it.
And then there's also vertical agreement.
So vertical agreement will exist whenever, say, a manufacturer will tell its distributor,
for example, you shall do things in this way and not in this way.
But if it tells all of its distributor, it imposes on its distributor a number of measures
such that they restrict competition between the distributors.
That's what we call restriction of intra-brand competition.
So I can use a jargon here, but we distinguish, and I won't go into further detail,
but just so people understand, vertical agreement may seem as damaging competition
when actually they restrict what we call intra-brand competition.
So imagine a product, say, a brand of mineral water that is sold by different supermarkets,
but the manufacturer or the producer of this water says,
you shall sell the mineral water at this price, you know, and everybody has the same price.
You cannot set the price below or above.
That limits competition between the supermarkets on this water, for this water.
So that's limited intra-brand competition.
That doesn't mean there is no competition with other brands of mineral water.
Now, a parenthesis, because I know you're from Singapore.
This kind of restriction is not illegal in Singapore, but it is in Europe.
So there are these arsenal of instruments to limit what we call restricted agreement,
which could give rise to an increase in price and increase the gap between price and cost.
Then there is another instrument, which is in the parlay of the European Union,
which is called the abuse of dominant position, which is regimented by Article 102.
And it says that companies that have acquired a dominant position may not abuse that dominant position.
There is nothing wrong with having a dominant position.
You can acquire a dominant position, but you cannot abuse it.
So you can be in a situation where you are the largest supplier in the market.
Typically, the case law says that you dominate, and I say the case law, not an economist, by the way.
The case law says that you dominate whenever you have a market share above 50%,
except for exceptional circumstances.
So typically, you presume to own the dominant position every time you have a market share above 50%.
And in that sense, there are a number of things you cannot do,
because then it would be seen as an abuse of dominant position.
And there are ways you can abuse your dominant position,
is to foreclose your competitors, to basically prevent your smaller rival to compete with you.
There are different ways of doing this, but one of them would be some sort of predatory pricing.
I'm selling prices super low, even below my cost,
so that I will eliminate and will drive you out of the market,
or some sort of rebate scheme that is similar to that.
Or there are other ways.
So abuse of dominant position is one way in which authorities in Europe at least limit the use of market power.
And then another very important instrument is merger control.
So very briefly, for transactions, so firms acquire another firm,
if the turnover of these firms is sufficiently high, they may notify the transaction to a competition authority.
So if two corner shops merge, typically nobody cares, sorry to say,
but the cost of an investigation is just too high.
But if two chains of corner shops that have hundreds of stores in the country,
then that may warrant if you want an investigation.
So we distinguish very quickly three types of mergers.
The first type is called horizontal mergers.
Horizontal mergers happen when two competitors merge.
What you can see here is that when you have a concentrated market and two important competitors merge,
they will eliminate competition between themselves.
Market power will be increased, and the gap between price and cost will rise, etc., etc.,
as far as for consumer and for allocative efficiency.
So that's pretty straightforward.
Now you have also vertical mergers, which is basically when a manufacturer and distributor merge,
or when a manufacturer and an input supplier merge.
And again, this could lead to some concern, but I won't go into this.
And then there are what we call conglomerate mergers.
Conglomerate mergers are essentially mergers between companies that do not overlap on the market,
so they don't compete head-to-head.
They are not also suppliers or buyers.
They're just essentially companies that have the same pool of customers,
but they offer different products.
The product could be complementary or independent, but the point is that they have the same pool of customers.
So those merger controls exist because it's a way of limiting concentration in the market,
or at least limiting the potential increase in market power that will result from mergers.
Now, so you can see, competition authority, at least in Europe and the UK,
have quite a wide range of instruments to limit ways in which companies or firms may increase market power.
I would say the very last thing I would add is in Europe we have also state aid control,
which is interestingly also the remit of Digi competition.
I'm going to say something maybe provocative, but I don't think this is competition policy,
but that's because it's different.
The objective in the sense that it's not directly about preventing the exercise of market power.
It is about preventing a distortion of competition as a result of, say, government subsidies or aid,
which is not saying this should not be intervention.
They should probably be controlled for this for sure, but the objective is slightly different, I would say.
And the way it's been administered is also a bit different.
So there you go.
So that's a very long introduction to what the aims and concerns of competition laws are, but at least this is it.
So at least the audience hopefully has a clear understanding of where this is going.
Yeah, thank you so much for the really great broad overview of competition law,
the aims of competition law and the kind of mechanisms that the UK and the European Union use to regulate competition.
So I guess what we'll move on to now is kind of the main meat of our podcast.
So I guess what exactly is this key conflict that we have between sustainability standards
or sustainability agreements even and competition law?
So the UK has released very recently some guidance on green agreements and when they might fall or fall of competition law.
And the European Commission has also released this guidance.
So why exactly is there this conflict and what's this conflict about?
OK, so this is a very important question.
First of all, I'm going to take a step back.
I think it's, I mean, at least in many economists' minds, you know, there's this rule, one instrument, one objective, one policy objective.
So competition policy has a clear objective, which is what I just described for quite a lengthy way what this objective is.
Now, sustainability as a policy has also its own objective, which let's say it's the green deal.
Let's be carbon neutral. That's a very clear objective.
Now, I think, first of all, like I said, and I think it's very important to clarify the debate.
Competition policy is not an instrument for sustainability objectives.
It just cannot be. It's not the first base solution.
Now that I've said that and I think that some people would like it to be, but I don't think it should be.
Now, first point is it is true that there could be conflict between sustainability objectives and the objective of competition policy.
And I think it's important to talk about this.
But there are also many ways in which there are no conflict.
So I don't think we should overstate as well the fact that competition policy would be seen as an obstacle to achieving sustainability goals.
So say having the European Union carbon neutral.
So, I mean, just to say, for example, and I'm going to praise the commission here,
the competition policy could actually investigate agreement between companies when those agree not to develop clean solution
or not to go the extra miles to actually develop technologies that would help achieve the green deal.
And there is a recent example where the commission has acted quite strongly in there.
In 2021, the commission has found that five German carbon manufacturers, Daimler, BMW, Volkswagen in particular,
they breached antitrust rule because they colluded, according to the commission, on technical development in the area of nitrogen oxide.
Nitrogen oxide is basically this carbon emission.
So it's an air pollutant and clearly it is something we would like to reduce because it's harmful to human health.
Now, what's interesting here is that basically there were regulations, you know, and that's the high to be that the regulator comes in and says,
we need to limit air pollutants.
So we need to limit the emission of nitrogen oxide and needs to be limited.
And usually, you know, if people don't, then they get fine, they get into trouble, blah, blah.
But here, so what we're talking about, what we're talking about is that the commission found out that actually the manufacturer made sure
that it would not go beyond what's mandated by the regulator.
So in some way, the fact that, you know, they didn't want to reduce nitrogen oxide emission more than they could have
and agree, it colluded for that, it's, you know, clearly it's the restriction of competition because, you know,
one of them could have said, I'm going to do better than what you do.
So my car manufacturer said, I want to sell a car that is even cleaner than car manufacturer B.
So I'm going to attract more consumers because they think that consumers also use this as a factor to make purchases.
And as a result of that, they would have probably stolen market share from the right.
And so there is a clear, you know, restriction of competition here.
And you can see here that this work together.
I mean, the sustainability objective and this sense and competitions are complementary.
So that's so that's good. It's not always bad.
OK, now there is one moment, there is one setting or there are a couple of settings where, yes, there is an issue.
OK, and it comes to agreement as you refer to your question.
Let's use car manufacturers as an example. It's probably the best way to do it.
So let's imagine that indeed a car manufacturer would, you know, would have a,
there is a solution out there for cleaner, cleaner technology that reduce emission drastically, I'd say.
But let's say also that that new technology is costly. It's not cheap.
The car manufacturer, one car manufacturer adopted unilaterally its costs is going to be increased.
And as a result, it's going to have to raise its price.
OK, now let's imagine that actually consumer, although they love to buy clean cars,
they don't value the clean cars as much as the cost of that new technology.
Right. And that's, I think, is a sensible assumption because even though you and I would think that clean cars are good,
typically, you know, the emission of our own car on our own health is not that much.
And so we're not necessarily going to put necessarily a great value to this.
Now, in that setting, there is competition between car manufacturers.
No one is going to adopt the new technology because it's just too costly.
You will be shooting yourself in the foot. And that's what we call the first mover disadvantage.
If someone moves first with this new, costly technology, they will produce cars that are clearly better for the environment.
But at the price tag, that is probably not appealing to consumers.
So they would lose many customers at the end. So the incentive of car manufacturers is not to do this.
Now, there are two solutions to this, to solve that problem,
because we would want to have this new clean technology to be rolled out because it's better for the planet and for us.
And I think there's very little debate about this.
Now, you could make, you could have the first basis of regulatory intervention.
So you raise the bar. You know, the technology is there.
I mean, obviously, regulation needs to be practical.
You cannot set goals that are unachievable.
But if it is achievable, then, you know, you can set the bar so that, you know, every car by your ex will have to adopt or have, you know, emission standard like this.
And this is what we see. The regulations operating.
Although it's not necessarily on a global scale, but you can see, you know, cities in Europe, in some countries, they are definitely setting, you know, emission standards.
Now, let's say there is no regulation or there is no clear regulation like this or regulation is going to be delayed.
The only way the car manufacturer could actually implement that solution would say, OK, we need to get together around the table and agree that we all implement that new technology
so that no one is, you know, undercutting the others and we all commit to actually by your ex have this technology rolled out and of course will be equipped with this clean technology.
Now, you know, that sounds good, right?
The problem is this is where competition law comes into play.
This agreement between competitors may be seen as a restriction of competition.
And this is where, you know, one would have problem with the competition law in a sense.
Now, let's be clear. If this agreement between the car manufacturer to develop clean technology is not a sham to actually exchange information to set prices, then in my mind, it should be fine.
It should be almost exempted.
However, even the Trump administration, which is not exactly known for exactly for its environmental goal, but had opened an investigation against car manufacturer because of their commitment to higher emission standard than those required by law.
So, yes, it is so there is some way to law, competition law, the view that if you agree, if you come together and adopt the same standard, you may be a restriction competition.
And we may talk a little bit more about this.
But in Europe, the idea was that if you do that, why this technology and why not the other?
So, yes, it's a notion that you're imposing a technology on all car manufacturers and and basically foreclosing other technology.
And that's I think it's a bit of a weird debate in my mind.
I'm not a lawyer, but I would think that this kind of agreement should be exempted from competition law.
I think you will avoid a conflict easily. And it's not obvious the restriction of the restriction of competition is not that obvious compared to a naked price collusion.
It's much less obvious. So but this is where the conflict arise.
Now, it gets even more and I'll take another five minutes here.
It gets even more interesting when in the context of mergers.
So you could have a merger. Imagine a merger between two competitors.
And so if there is a merger between two competitors and if it's a concentrated market, you would expect price to increase.
Particularly if there are various rent trees, difficult to enter.
There is no countervailing factors that would limit that that effect on competition.
So there is clearly a bad right. There is something that's going to impact consumers.
Now, imagine that this one of the emerging firms is actually developing a new technology and it's produced a clean technology.
It's developing it. And for whatever reason, it's not licensing.
It has the IP, but it's hard to license. It's difficult to enforce the IP right.
So let's assume that there's also a cost efficient technology.
So that firm is going to adopt that clean technology and will sell clean a product.
Now, one of the benefits of the merger is that one of the emerging party has this clean technology and post merger, the other emerging party is going to benefit from it.
So in other words, the technology will be rolled out on a much larger scale.
There will be a higher production level that is subject to this better clean technology, which let's say, let's imagine that the obvious benefit,
or at least immediate benefit and maybe for the long term is that this will lead to a reduction in the emission of greenhouse gases.
So that's a good thing. I think this problem is actually more difficult to solve than the agreement that I talked about earlier,
because here we have clearly a problem in the sense that the market in which these companies are selling the merger will give rise to a price increase.
So some consumers are going to be hot. And then at the same time, we're going to have a benefit to the environment
because there will be a reduction in greenhouse gases that will be even higher than without the merger,
because now the two emerging parties will have the benefit of this new technology, which for whatever reason cannot be licensed or adopted otherwise.
Now, how do you go about this? This one, I think is tricky because you have clearly a restriction of competition in the market where the product is being sold.
So consumers in the market are harmed, but benefit is for consumers in that market who get cleaner air,
but also all the non-consumers, all the people outside that market benefit from.
So when it comes to technology that is widespread, it's quite easy. I mean, if you think about fuel, people who drive, there are a lot of people who are driving.
So you could almost equate drivers and population, not in our country, but in the United States.
But at least you're not getting far. But you can imagine a situation where the market might be quite limited,
and yet the benefit in gas emission is quite universal.
So this is where there's been a lot of discussion how we deal with it, how we balance this.
I mean, so that discussion, the merger example I'm using, I think, tells more the story than I think the agreement,
because I think the agreement that I described, I have a harder time seeing the problem that, I mean, people make a, see the problem, I see it less.
But anyway, but what is crystallized, and I think that's the key, is that how do you balance on the one hand the harm that someone,
you know, the harm to competition, which would be suffered by some consumer, a limited set of consumer, and the benefit to a wider group.
Alright, so we talked about, I guess, how we kind of balance and assess the kind of harm that's caused the consumers,
for example, through higher prices, as well as the benefits that they get through, for example, cleaner.
So the UK and the European Commission have both come out with guidance,
which also touches briefly on how to assess these kinds of, like, metrics and how to balance them, etc.
So what do you think are the key differences between the regulation of these sustainability agreements or sustainability standards in Europe,
or as you mentioned, the mergers and acquisitions problems, versus the regulation of these actions in the UK?
Okay, yeah, so this is a pretty important question.
So when indeed there seems to be a conflict between competition law and sustainability objective,
this is largely the case in, so, agreement between competitors, what we just discussed earlier, or in the context of mergers,
where the agreement between competitors can give rise to a price increase, or a merger can give rise to a price increase,
which is going to harm the consumer on the market, and then at the same time you can have benefit from, say, the acquisition of a better standard,
which will result in reduction of greenhouse gases emission.
Now, so that problem has been identified, and how competition agencies are going to handle it.
And this is where it's important to realize that, to come back to what I said earlier,
is that, you know, the objective of competition policy is not a reduction of emission of gases.
That's just not, okay? So people need to realize this.
At the same time, we don't want necessarily competition law or the intervention by competition agencies
to limit the progress towards, you know, a carbon neutral economy.
Now, authorities, so therefore, have published, as you said, guidance for a company,
and this is a really good thing by the way, let me just open a parenthesis.
Competition authorities are doing a great job in trying to explain how they will look at the agreement,
and this is not just about sustainability agreements, it's about everything.
So the European Commission, as well as the CMA, are definitely doing a great job in explaining to lawyers and their advisors,
how, you know, they're going to assess agreement.
Now, the Commission has published a new guidelines in this year on a horizontal agreement,
and in that guidelines, there is a new chapter on sustainability agreement,
and the CMA has also, last month, published a green agreement guidance,
which basically tackles the same issues as what the European Commission is doing, okay?
Now, these documents are very interesting, and I mean, so I know well the European Commission agreement,
I knew a little less well the CMA, and I mean, there are differences, but by and large, they're very similar.
The UK still use a very similar provision than the European Commission when it comes to the assessment of agreement.
Now, so one of the issues that this agreement tackles is what we call standardized agreement, or standard agreement.
So when companies, as I said, you know, decide to set up this common agreement, and this seems to be raising a concern.
And like I said, for me, I'm not sure what the concern is, but anyway, they tell us there is a concern,
and then they tell us how the benefit can be assessed.
So I don't want to enter into super technical discussion here for your audience,
but whenever an agreement is seen as restricting competition, it can be exempted if it meets a number of conditions,
which means essentially, to put it simply, that the benefits outweigh the harm, okay?
So there is harm to competition, which is usually assumed, and then, you know,
a company, if they show there is a benefit that accrues to the consumer,
then there will be a balancing exercise between the harm and the benefit, and if the benefit outweigh the harm,
then the agreement is exempted, i.e. it is legal.
Now, when it comes to standardized agreement towards environmental sustainability, the benefits are pretty clear.
Benefit is typically, when it comes to environmental benefit, I mean, the obvious one is reduction of greenhouse gases, okay?
That would be one of the benefits.
Now, the authorities need to translate this into benefit for consumer, okay?
So an agreement can be exempted if an agreement generates benefits, and a fair share of this benefit goes to consumer.
And this is where it gets tricky, and yet this is where competition is not going out of their way to help.
And I agree with them in many ways.
What the authority is telling us is that the benefit must accrue to consumers that have been harmed.
So that's the debate between what we call in-market and out-of-market efficiency gains, okay?
So in other words, and to put it simply, you pay more because you're a consumer of the product that is the object of the agreement,
and for whatever reason, the price is increased.
To me, again, I repeat, this is not obvious why there would be a price increase because we have a standardized agreement,
which leads to less competition, but anyway, come from... spark that.
But let's imagine that there is a harm, and then the benefit must be that you breathe cleaner air, right?
And what we're going to do is the commission and the CMS saying,
well, it's got to be the cleaner air that these consumers are breathing.
So if you want the benefit per users is very small, given that you take only the portion of the benefit that is accrued to consumers that have been harmed by the agreement,
then you may end up in a situation where something that is really good for society is not going to be deemed lawful
because essentially the harm to this small group of consumers is too high.
So if they say 100 consumers have been harmed, and they pay a higher price, and then 10 million people breathe better air,
so you would think, okay, I didn't do the math, but we should go for it, right?
Because 10 million people breathing better air is probably better for society, better for their health, there could be a lot of benefit,
and too bad 100 people pay more, although I'll come to that in a minute.
And then you would say, okay, well, we should let this go through, right?
And then because the authorities are going to say, no, hang on, we're going to look at only the benefit of air quality for these 100 consumers.
And that's, you know, clearly that's going to raise the bar, that's the hurdle that's very difficult to overcome, right, for the group.
So now this is where this is where competition authority have been put in a difficult spot,
because the reason they do what they do is because if you start opening the gate towards out of market efficiencies,
then you need to have limiting principle, limiting factors, because anything can come.
You know, why not unemployment benefit? The standard of the authority might start changing towards, you know, the effect on competition to public interest.
And then the margin of discretion is huge, it's more difficult to administer, and it's not even obvious that, you know, who is going to resolve conflicting objective?
And like I said, it goes against the principle of one instrument, one object.
So I see where the authority come from and why they're trying to have this limited principle.
But at the same time, you do wonder why is it that we cannot let an agreement go through its benefit millions?
And this is where, you know, I think there are discussion here.
Some people will say, well, so long as the regulator has not intervene, we hope they will intervene because they should, you know,
they should be responsible for the reduction of greenhouse gases emissions and it's not the job of competition authority to do that.
And they should set the standard so that it's clear that competition authority won't have to deal with this.
So but until then, maybe competition authority should do more and should exempt this disagreement, even though, you know, a few people might be harmed.
And that's what the commission authority don't want to go there. That's not they don't want.
I mean, a few trying to, but by and large, the European Commission, the CMA, have been pretty clear that they don't want to do this.
Now, so you could see that the balancing can be done, you know, and then we can talk a little bit about that.
But it will be limited to those who to look at individuals who have been harmed by the agreement or the mergers
and whether they've you know, the benefit from the merger of the agreement will our way to the harm.
So you and you know, economies can do that because we know we're great at putting a number or at least we're putting a value to things.
Right. So there are ways you can you can stop, you know, price increase.
You can try to to to gauge it or to estimate it.
And then the benefit from a reduction in greenhouse gases emission can also be you can put a pound value, your value, dollar value to this as well.
Yeah. So actually, as an economist, how do you put a numerical value on, for example, someone's preference for cleaner air?
What kind of, for example, methodologies do you use? Is it like survey based or how do you do that?
So this is a really good question. And so for some of those, I know the answer for some, I know less the answer.
But first of all, there is typically not always a market price for this.
You know, what's the value of what's the value to you or me or a consumer reduction in emission of greenhouse gases?
I mean, there's that's there's no market for this. Right.
So so then it becomes comes with the notion of we need to find a shadow price.
It's called shadow price because there is no no no no no market for this.
And so the way it works is the shadow price is basically what is the social value or the social cost of this reduction in greenhouse gases emission.
So now the good news is, you know, there are agencies who are working on this and trying to tell us what the shadow price is.
My colleague was previously at the AGCM, which is the Dutch Competition Authority, has worked on this.
And the Dutch Authority is very much a big proponent of putting sustainability on the agenda.
And they, for example, in the Netherlands, they've been estimated at the price of CO2 is fifty seven euros per kiloton.
So how do you how do you do this? There are different ways of doing this.
There is the notion of, you know, we can put values to anything.
You know, and I'm taking the example from from again is that if you want to know, for example, the value of a cleaner hair when you're living in cities,
you can look at the difference in prices of housing.
Those are close to the highway and close to a park.
Right. I mean, in addition to many other characteristics that they'll tell you, I mean, you're controlling for everything else that matters in affecting the price of a house.
You could actually consider that some of it may be explained by the fact that people are paying a higher price to live close to a green pasture compared to live next to a highway.
You can you can. And there may be some aesthetic to this as well.
So the way one way to do this is to look at.
So what's the benefit of a reduction in air pollutants?
Then you can so basically try to figure out what are the different component.
So obviously one is health. So, you know, looking at, you know, we know that nitrogen oxide is bad for our health.
I don't know. I mean, I'm not an expert, but I'm told it's bad.
And there are studies who actually say, you know, reduction in X amount emission will lead to, you know, that kind of health benefit.
And in some countries, we are starting to quantify health benefits.
It is also good for, you know, the climate, maybe a connection between climate change and housing.
You know, air pollutants are very bad for housing.
You know, it's to deteriorate where it's worse.
So this you can add this up, for example.
And in some ways, you go and do surveys.
You can do surveys. So as economists, what we we care is the willingness to pay of people.
So there is no market. The problem is there is no real preference. People are not paying because there is no trade.
So the benefit of a reduction in air pollutants is not traded.
So how do you assess the willingness to pay for people?
But survey is obviously a way to go. It's obviously has its limitation.
It's people may overstate massively the willingness to pay for things.
But, you know, you can do survey, conjoint analysis.
Conjoint analysis is used in marketing.
The way it works, conjoint analysis, is to, you know, you put pair.
You ask people to choose between two options typically.
And you change, you know, there's a price and then you describe the product and the product of different features.
And then you change that continually to get an understanding of what how people,
what attributes of a product or service people attribute to.
You can do the same thing for.
So you could do that. The commission alludes to this in its guidelines.
I'm now diverging to what the commission is saying.
In its guidelines, the commission is telling us that there are three types of benefits that you could consider when you do this weighting, this balancing exercise.
There is the use value that people just like to buy, you know, better products.
If you go to the supermarket and you buy organic food or food that has been made through sustainable waste, they are tend to be more expensive.
And you pay for it. OK, fine. That's easy.
That's what we buy. That's that's it.
But the point comes when this called a non-use value that I would be willing to pay a higher price for detergent that cleans less well, but it creates no waste to water.
It's not going to pollute water. And then there is the collective benefit.
I mean, you know, production pollutants obviously benefits everybody and multiples.
Health, human health, you know, climate change, ecosystems, housings.
So that's that's hard. That's hard to do.
And I think that what's going to happen is the commission will probably and maybe the CMS as well.
Well, people will come to the commission or to the CMA to examine this agreement will have to essentially hire economists.
And the focus will be largely on developing surveys to actually show that people value, you know, a cleaner solution or something that is sustain environmentally friendly solution.
And how much, you know, pounds they put to that.
I think that that's and you could do survey that are, you know, that are trying to prevent people from overstating.
I mean, you'll never prevent them from completely overstating.
But, you know, at least limit the overstating.
So that, you know, this is where we're going.
But I think I mean, the authorities also accepting and the commission as well as the CMA accepting that they need to learn how to do this.
So they are asking firms to come forward to discuss their plans and to see how they can work together.
So I think the authorities are quite an open point to this.
They won't wield the stick.
They will probably want to listen.
I mean, so long as these agreements are genuine and they are not the way to actually, you know, collude or exchange information that will lead to.
I think that's that. So I think more is to be seen in the next few years.
But it's clear that at least the authorities are opening the door to say, OK, we'll do our best to exempt those agreements.
But we're not going to bend the rules.
I just wanted to pick up on what you said about, I guess, almost like the greenwashing of the collusion agreement.
So actually, how do you tell between an agreement that's basically just a collusion agreement with a lot of environmental jargon thrown on top of it and in contrast, an actual sustainable agreement?
Other economic measures that you use to assess this?
That's an extremely good question.
I'm not aware of cases that where that has been an issue.
But is it a sham, where essentially greenwashing and then nothing really, there's nothing tangible behind it.
I think, I mean, I think this is it boils down to evidence.
It boils down to, you know, demonstrating the benefit of the agreement.
You know, if it's telling, you know, agreeing to use less plastic, for example, when you can see this as a pretty clear case in distribution for, you know, product and consumer goods.
You know, reducing the use of plastic.
I think, I mean, in Europe, we have a direct tape now, and that's probably a good thing.
But, you know, the industry may want to go beyond and maybe we want them to go beyond some of this mandated.
And so we will come to, you know, explaining to the authority, you know, we are going to use less plastic and what it is.
My sense is that greenwashing is often more about companies that say, I'm greener than I really are.
And that's more consumer protection issues.
You know, it's false advertising in many ways.
And I think that should be picked up clearly.
But, I mean, do they need to agree to use less plastic?
Not clear to me.
I mean, I think there is first mover disadvantage here.
So I'm not sure there is a movement.
So then it comes to the question of indisputability, whether you need to discuss.
And I think it only comes to standard.
When there is this first mover disadvantage that we discussed earlier, this is really when the issue comes.
Otherwise, companies probably don't need to discuss.
Compete on being greener.
That's good.
Just one last question would be, I guess, as an economist, you work a lot with lawyers across different jurisdictions.
So how do you think lawyers and economists can kind of work together and coordinate better in the future?
Oh, that's a really general question.
I think so clearly competition law needs to work in a legal framework.
I mean, that's clear.
So lawyers are indispensable.
They'll be very happy to hear this.
They're indispensable to the good order and working of competition law.
Now, I think in the terms competition law, there is one term that's called competition, which is mostly economics.
Although maybe some people would disagree with that.
But I think economists have a lot to say about competition.
And we are making things too complicated.
It comes sometimes are unnecessary.
I mean, at least they can add insight into how market operates, which help regulators and lawyers understand whether an agreement, a merger or practice is actually detrimental to competition or stifle competition.
And so the way it works best is when, you know, the way it works best is when economists are not involved, for sure, because this is easy.
This is simple.
And we all want clear and simple rules.
That's for sure.
Competition is not a simple matter.
It's not, you know, there is a red light.
You stop.
There's a green light.
You can go.
It's sometimes more complicated.
It's often more complicated than that.
And assessment needs to be done thoroughly.
And economists, you know, must work hand in hand with it.
With lawyers often, I mean, in cases where things are complex, to provide some insight.
And they do that.
And you can see that guidelines from authorities are often inspired by economics.
There's a lot of economics in these guidelines.
And I think they are written in a way that are clear to non-economists.
And I think this is a job of non-economists to try to, not to try, but this is a job of economists to be understood by non-economists to add their insight in a way that is understandable by everyone.
And I think that's how lawyers and economists work hand in hand together.
And I think in the context of a sustainability agreement, I think the insight of economists is particularly important as well.
Well, I think that's all the questions I have for you today.
But thank you so much for agreeing to speak to us and for sharing your insights with our audience.
It's like a sort of like niche intersection.
And I think that's something that's really interesting and kind of new and refreshing to our audience.
So thank you.
Well, thank you for having me.
It's been a pleasure to discuss this very important topic today.
And I think, like I said, I think there will be more discussion and your audience should pay attention to what authorities are doing in that space because we are writing in many ways history here.
While authorities are looking in ways into promoting sustainability agreement and it will be interesting to see how they're going to act when they actually face actual cases.
So thank you.