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Colluding Against Environmental Regulation

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  • Reynaert, Mathias
  • Ale-Chilet, Jorge
  • Chen, Cuicui
  • Li, Jing

Abstract

We study collusion among firms under imperfectly monitored environmental regulation. We develop a model in which firms increase variable profits by shading pollution and reduce expected noncompliance penalties by shading jointly. We apply our model to a case with three German automakers colluding to reduce the size of diesel exhaust fluid (DEF) tanks, an emission control technology used to comply with air pollution standards. To estimate our model, we use data from the European automobile industry from 2007 to 2018. We find that jointly choosing small DEF tanks lowers the expected noncompliance penalties by at least 188-976 million euros. Smaller DEF tanks improve buyer and producer surplus by freeing up valuable trunk space and saving production costs, but they create more pollution damages. Collusion reduces social welfare by 0.78-4.44 billion euros. Environmental policy design and antitrust play complementary roles in protecting society from collusion against regulation.

Suggested Citation

  • Reynaert, Mathias & Ale-Chilet, Jorge & Chen, Cuicui & Li, Jing, 2021. "Colluding Against Environmental Regulation," CEPR Discussion Papers 16038, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16038
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    3. Mohapatra, Debashrita & Lopez, Rigoberto & Steinbach, Sandro, 2025. "Mergers, store revenue, and jobs: Evidence from the food retail industry," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 360970, Agricultural and Applied Economics Association.
    4. Kastoryano, Stephen & Vollaard, Ben, 2022. "Nautical Patrol and Illegal Fishing Practices," Discussion Paper 2022-016, Tilburg University, Center for Economic Research.
    5. repec:ags:aaea22:343711 is not listed on IDEAS
    6. Kastoryano, Stephen & Vollaard, Ben, 2023. "Unseen annihilation: Illegal fishing practices and nautical patrol," Journal of Environmental Economics and Management, Elsevier, vol. 122(C).
    7. Pascal Heid & Kevin Remmy & Mathias Reynaert, 2024. "Equilibrium Effects in Complementary Markets: Electric Vehicle Adoption and Electricity Pricing," CRC TR 224 Discussion Paper Series crctr224_2024_615, University of Bonn and University of Mannheim, Germany.
    8. Ying She & Guoliang Liu & Ling Jia & Yangu Deng & Liyuan Zhang, 2023. "Spatial-temporal Evolution of Global Aircraft Production Network: Evidence from 1741 Global Aircraft Firms," Review of Economic Assessment, Anser Press, vol. 2(1), pages 40-53, April.
    9. Chenruo Zhang & Yuchen Bi & Zijie Jiang & Xiaoru Shen, 2023. "Hometown CEOs and Pollution Emissions: Evidence from Chinese Listed Companies," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 13(6), pages 1-5.
    10. de Boon, Auvikki & Sandström, Camilla & Rose, David Christian, 2022. "Perceived legitimacy of agricultural transitions and implications for governance. Lessons learned from England’s post-Brexit agricultural transition," Land Use Policy, Elsevier, vol. 116(C).
    11. Lopez, Rigoberto A. & Mohapatra, Debashrita & Steinbach, Sandro, 2024. "Mergers, store locations, and jobs: Evidence from the food retail industry," 2024 Annual Meeting, July 28-30, New Orleans, LA 343711, Agricultural and Applied Economics Association.

    More about this item

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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