This presentation by Nadine Watson, Senior Vice President, Compass Lexecon, was made during the discussion “Environmental Considerations in Competition Enforcement” held at the 136th meeting of the OECD Competition Committee on 1 December 2021. More papers and presentations on the topic can be found out at oe.cd/ecce.

1. compasslexecon.com
Roundtable on Environmental Considerations in Competition Enforcement
Measuring environmental benefits in
competition cases
Nadine Watson
1 December 2021

2. 1
compasslexecon.com
ASSESSING THE BENEFITS
MAIN BUILDING BLOCKS
Standard efficiencies analysis: consumer welfare
Do non-price benefits offset price rises caused by a reduction in competition?
 What are the benefits to the environment?
 Are the claimed benefits likely and realistic?
 When will they materialize?
 How much are consumers willing to pay?
 Internal documents
 Internal calculations
 Expert reports
 Observed behaviour (revealed preferences)
 Survey responses (stated preferences)
VERIFICATION OF BENEFITS VALUATION OF BENEFITS
Challenges for environmental benefits? (a) willingness to pay and (b) out-of-market benefits

3. 2
compasslexecon.com
WILLINGNESS TO PAY
FOR ENVIRONMENTAL BENEFITS
Total value will vary with:
 Choice context
 Available
information/awareness
 Social norms (Inderst
and Thomas, 2021))
USE
VALUE
 Value derived from the direct consumption
 Generally, consumers are aware of that value
 Also referred to as passive value, the value
consumers attach to a product feature, even
though they do not directly or indirectly consume
or experience that feature
 May not be aware of it and/or its value
NON-
USE
VALUE
Example: The Exxon Valdez oil spill killed wildlife and required years to remove the oil from the beaches.
 The state of Alaska claimed $3 billon in damages based the loss of passive use value (Carson, 2012).
– The valuation included: careful pretesting, rigorous sampling, high response rate, in-person interviews, a discrete
choice modelling, a detailed description of oil spill effects of the oil spill, debriefing questions after the survey,.
 Exxon estimated $4 million in direct economic losses from lost recreation days.
Analysis of consumers’ willingness to pay for environmental benefits will be inaccurate,
if consumers are unaware of the impact on the environment.
WTP is the right approach, but the methodologies need to account for non use value

4. 3
compasslexecon.com
METHODOLOGIES
USE AND NON-USE VALUES
Survey
Xnt
Purchase
Travel cost &
averting
behaviour
Hedonic
prices
Field
experiments
Simple
Surveys
Extended
Survey
Data collection
Non-use value
Method
Prospective
Standard tools to elicit willingness to pay, used extensively by competition authorities and in
environmental economics.
Purchase Survey Survey
Xnt Xnt t nt
X X
Revealed Preference Stated Preference

5. 4
compasslexecon.com
METHODOLOGICAL CHOICE
CASE SPECIFIC
Travel cost &
averting
behaviour
Hedonic
prices
Field
experiments
Simple
Surveys
Extended
Survey
Method
The choice of method will depend on the specific features of the case:
 Size of the restriction
 Relative importance of non-use values
 Influence of future attributes and attitudes
Expected
impact on
prices
Qualitative
WTP based
on actual
purchases

6. 5
compasslexecon.com
• Who are the relevant consumers (accounting for changes to the product’s attributes)?
• What about non-consumers views (on mitigating the externality imposed on them)?
OUT-OF-MARKET BENEFITS
CONSUMERS AND NON-CONSUMERS
Stated preference
Current
Current
WTP more if
sustainable
WTP more if
others do
WTP only if
sustainable
WTP more if
others do
WTP only if
sustainable
WTP only if
others do
WTP only for
sustainability
WTP only if
others do
Current
consumer
Current
consumer
+Potential
consumer
+Potential
consumer
+Non
consumer
Views on
product attributes
Views on
conduct of others
Groups
Analysis required
Market definition and WTP are affected by views on (a) attributes, and (b) others’ conduct
Revealed