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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
6329.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Schinkel,Maarten Pieter & Rüggeberg,Jakob & Tuinstra,Jan, 2003.
"Illinois Walls,"
Research Memoranda
027, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
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Other versions:
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.
[Downloadable!]