The Scope and Limitations of Incorporating Externalities in Competition Analysis within a Consumer Welfare Approach

Abstract

The failure to fully internalize externalities from production and consumption, including on future generations, is supposed to be at the core of the perceived failure to ensure (ecological) sustainability within the realm of antitrust enforcement. While some argue that sustainability should constitute a goal in itself that must be balanced against economic efficiency in antitrust analysis, we instead want to explore whether and how sustainability can be incorporated into a consumer welfare approach. We make a key distinction between what we term an individualistic and a collective consumer welfare analysis. Within an individualistic consumer welfare analysis, consumers’ willingness-to-pay is measured ceteris paribus, holding other consumers’ choices fixed. In a collective consumer welfare analysis, consumers may express their willingness-to-pay also for the choices of others and, thereby, also for the reduction of externalities on themselves. Borrowing from environmental and resource economics, we also discuss more indirect ways of incorporating such externalities. And we critically assess the possibility of ‘laundering’ consumers’ sustainability preferences in the light of supposed biases and cognitive limitations. Finally, we relate our analysis to the Draft Horizontal Guidelines of the European Commission, published in March 2022. antitrust, consumer welfare, conjoint analysis, contingent valuation, Draft EU Horizontal Guidelines, environmental economics, externalities, laundering preferences, sustainability, willingness-to-pay