AbstractWe analyse the key determinants of umbrella effects, which arise when the price increase or quantity reduction of a cartel diverts demand to substitute products. Umbrella effects arise irrespective of whether non cartelists act as price takers (“competitive fringe”) or respond strategically to the increased demand. Sizable umbrella effects can also arise when non-cartelists are outside the relevant market (in the sense of a SSNIP test), provided that the cartel’s price increase is substantial. Further, a shift of demand to non-cartelists, triggering a price increase, can be induced also when their purchasers themselves benefit from higher demand as rivals purchase from the cartel and pass-on the respective price increase. To identify the actual damage it is thus key to take into account the overall adjustments among cartel members and outsiders as well as their respective, potentially competing purchasers. We also discuss how future analysis of the endogenous formation of cartels with partial market coverage should inform theories of the determinants of umbrella effects.
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Bibliographic InfoPaper provided by IESEG School of Management in its series Working Papers with number 2013-ECO-17.
Length: 22 pages
Date of creation: Jul 2013
Date of revision:
umbrella effect; partial cartel; pass-on; cartel effect; quantification of damages; merger effects; private enforcement; standing; market definition; cellophane fallacy; antitrust;
Find related papers by JEL classification:
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-25 (All new papers)
- NEP-COM-2013-09-25 (Industrial Competition)
- NEP-LAM-2013-09-25 (Central & South America)
- NEP-LAW-2013-09-25 (Law & Economics)
- NEP-LTV-2013-09-25 (Unemployment, Inequality & Poverty)
- NEP-MKT-2013-09-25 (Marketing)
- NEP-NEU-2013-09-25 (Neuroeconomics)
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