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Cartel Damages Claims and the Passing-on Defence

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  • Van Dijk, Theon
  • Verboven, Frank

Abstract

We develop a general economic framework for computing cartel damages claims. We decompose a direct purchaser plaintiff's lost profits from the cartel in three parts: the anticompetitive price overcharge (or cost effect), the pass-on effect and the usually neglected output effect. The pass-on effect is the extent to which the plaintiff passes on the price overcharge by raising its own price, and the output effect is the lost business resulting from this passing-on. To evaluate the relative importance of the three effects, we subsequently introduce various models of imperfect competition for the plaintiff's industry. We show that an adjusted passing-on defense (i.e. accounting for the output effect) is justified under a wide variety of circumstances, provided that suficiently many of the plaintiff's rivals are affected by the cartel. We derive exact discounts to the price overcharge, which depend on relatively easy-to-observe variables, such as the pass-on rate, the number of firms, the number of firms affected by the cartel, and/or the market shares. We finally extend our framework to assess the cartel's total harm (on purchaser plaintifs and consumers), further demonstrating the crucial importance of the output effect. Our results are particularly relevant in light of the recent developments in U.S. and European antitrust policies.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6329.

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Date of creation: Jun 2007
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Handle: RePEc:cpr:ceprdp:6329

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Keywords: cartels; damages; passing-on defence;

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References

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  1. Connor, John M., 2005. "Price-Fixing Overcharges: Legal And Economic Evidence," 2005 Annual meeting, July 24-27, Providence, RI 19254, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. repec:fth:iniesr:556 is not listed on IDEAS
  3. Farrell, J. & Shapiro, C., 1988. "Horizontal Mergers: An Equilibrium Analysis," Papers 17, Princeton, Woodrow Wilson School - Discussion Paper.
  4. Werden, Gregory J & Froeb, Luke M, 1994. "The Effects of Mergers in Differentiated Products Industries: Logit Demand and Merger Policy," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 407-26, October.
  5. Martin Hellwig, 2006. "Private Damage Claims and the Passing-On Defense in Horizontal Price-Fixing Cases: An Economist’s Perspective," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2006_22, Max Planck Institute for Research on Collective Goods.
  6. Stennek, Johan & Verboven, Frank, 2001. "Merger Control and Enterprise Competitiveness - Empirical Analysis and Policy Recommendations," Working Paper Series 556, Research Institute of Industrial Economics.
  7. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
  8. Corts, Kenneth S., 1998. "Conduct parameters and the measurement of market power," Journal of Econometrics, Elsevier, vol. 88(2), pages 227-250, November.
  9. Rüggeberg, J. & Schinkel, M.P. & Tuinstra, J., 2005. "Illinois Walls: How barring indirect purchaser suits facilitates collusion," CeNDEF Working Papers 05-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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Citations

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Cited by:
  1. Boone, J. & Müller, W., 2008. "The Distribution of Harm in Price-Fixing Cases," Discussion Paper 2008-68, Tilburg University, Center for Economic Research.
  2. Damien Neven & Hans Zenger, 2008. "Ex Post Evaluation of Enforcement: A Principal-Agent Perspective," De Economist, Springer, vol. 156(4), pages 477-490, December.
  3. Beschorner, Patrick Frank Ernst & Hüschelrath, Kai, 2009. "Ökonomische Aspekte der privaten Durchsetzung des Kartellrechts," ZEW Discussion Papers 09-075, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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