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Colluding Against Environmental Regulation

Author

Listed:
  • 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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    15. Qiang Wu & Yuhao Chen & Aoxue Wang, 2026. "Decarbonizing global value chains: the dual role of manufacturing servitization in export-implied carbon emissions – scale expansion vs. structural upgrading," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 31(2), pages 1-29, February.
    16. 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).
    17. Jiangnan Wu & Xuebo Zhang & Zhihao He & Bingkun Lu, 2025. "The effect of digital inclusive finance on the development of the green economy in china: A panel data analysis," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 27(12), pages 29075-29103, December.
    18. 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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