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Illinois Walls: how barring indirect purchaser suits facilitates collusion

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  • Maarten Pieter Schinkel
  • Jan Tuinstra
  • Jakob Rüggeberg

Abstract

In its landmark ruling in Illinois Brick Co. v. Illinois in 1977, the U.S. Supreme Court restricted standing to sue for recovery of antitrust damages to direct purchasers. However, antitrust damages are typically (in part) passed on to intermediaries lower in the chain of production and ultimately to consumers. We show that the Illinois Brick rule facilitates collusion. It allows an upstream cartel to shield itself from private damage claims by forwarding a share of cartel profits to its direct purchasers. These benefits dissuade the direct purchasers from exercising their exclusive right to sue for private damages. The cartel can achieve this by rationing inputs at low prices. Several U.S. antitrust cases show symptoms of Illinois Walls. Copyright (c) 2008, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 3 ()
Pages: 683-698

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Handle: RePEc:bla:randje:v:39:y:2008:i:3:p:683-698

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  1. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 58, pages 347.
  2. Maarten Pieter Schinkel & Jan Tuinstra & Jakob Rüggeberg, 2005. "Illinois Walls," Tinbergen Institute Discussion Papers 05-049/1, Tinbergen Institute.
    • Schinkel, M.P. & Tuinstra, J. & Rueggeberg, J., 2004. "Illinois Walls," CeNDEF Working Papers 04-03, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    • Schinkel,Maarten Pieter & Rüggeberg,Jakob & Tuinstra,Jan, 2003. "Illinois Walls," Research Memorandum 027, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  3. Besanko, David & Spulber, Daniel F, 1990. "Are Treble Damages Neutral? Sequential Equilibrium and Private Antitrust Enforcement," American Economic Review, American Economic Association, American Economic Association, vol. 80(4), pages 870-87, September.
  4. F. M. Scherer, 1997. "How US Antitrust Can Go Astray: The Brand Name Prescription Drug Litigation," International Journal of the Economics of Business, Taylor & Francis Journals, Taylor & Francis Journals, vol. 4(3), pages 239-256.
  5. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 026272040x, December.
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  7. Joseph E. Harrington, 2004. "Post-Cartel Pricing During Litigation," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 52(4), pages 517-533, December.
  8. Snyder, Edward A, 1985. "Efficient Assignment of Rights to Sue for Antitrust Damages," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 28(2), pages 469-82, May.
  9. Salant, Stephen W, 1987. "Treble Damage Awards in Private Lawsuits for Price Fixing," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(6), pages 1326-36, December.
  10. Baker, Jonathan B, 1988. "Private Information and the Deterrent Effect of Antitrust Damage Remedies," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 4(2), pages 385-408, Fall.
  11. Lovell, Michael C., 1982. "Are treble damages double damages?," Journal of Economics and Business, Elsevier, Elsevier, vol. 34(3), pages 263-268.
  12. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  13. McCutcheon, Barbara, 1997. "Do Meetings in Smoke-Filled Rooms Facilitate Collusion?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 330-50, April.
  14. Hugh C. Briggs III & Kathleen D. Huryn & Mark E. McBride, 1996. "Treble Damages and the Incentive to Sue and Settle," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 770-786, Winter.
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Citations

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Cited by:
  1. Frank Maier-Rigaud & Ulrich Schwalbe, 2013. "Quantification of Antitrust Damages," Working Papers, IESEG School of Management 2013-ECO-09, IESEG School of Management.
  2. Boone, J. & Müller, W., 2008. "The Distribution of Harm in Price-Fixing Cases," Discussion Paper, Tilburg University, Center for Economic Research 2008-68, Tilburg University, Center for Economic Research.
  3. Van Dijk, Theon & Verboven, Frank, 2007. "Cartel Damages Claims and the Passing-on Defence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6329, C.E.P.R. Discussion Papers.
  4. Iwan Bos & Maarten Pieter Schinkel, 2009. "Tracing the Base: A Topographic Test for Collusive Basing-Point Pricing," Tinbergen Institute Discussion Papers 09-007/1, Tinbergen Institute.
  5. Roman Inderst & Frank Maier-Rigaud & Ulrich Schwalbe, 2013. "Quantifizierung von Schäden durch Wettbewerbsverstöße," Working Papers, IESEG School of Management 2013-ECO-08, IESEG School of Management.
  6. Iwan Bos & Maarten Pieter Schinkel, 2009. "Tracing the Base: A Topographic Test for Collusive Basing-Point Pricing," Tinbergen Institute Discussion Papers 09-007/1, Tinbergen Institute.
  7. Schinkel, M.P. & Tuinstra, J., 2005. "Illinois Walls in alternative market structures," CeNDEF Working Papers 05-11, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  8. Frank Maier-Rigaud, 2013. "Towards a European Directive on Damages Actions," Working Papers, IESEG School of Management 2013-ECO-16, IESEG School of Management.

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