Balancing the Public Interest-Defence in Cartel Offenses

Horizontal agreements may be exempted from cartel law if they advance certain public interests, such as public health or the environment, enough to compensate the consumers damaged by their anti-competitive effects. We formalize the balancing of cartel unit price overcharges on a private good against the willingness of its consumers to pay for an accompanying public good. A cartel could improve upon the classic under-provision in competitive equilibrium, even though it crowds out private contributions. We show however that the required compensating public good level in no-contributor economies decreases in each consumer's willingness to pay, which is contrary to the Samuelson condition. With at least one private contributor, the policy can never attain first-best. Moreover, by self-selection the policy asks those individuals with the lowest willingness to pay for the public good to pay most, which is orthogonal to Lindahl-pricing. As a result, the public interest-cartel is typically not sustainable. To identify a genuine public interest-defense requires more information than a competition authority can reasonably be expected to have.