IDEAS home Printed from https://ideas.repec.org/p/ete/ceswps/ces0715.html
   My bibliography  Save this paper

Cartel damages claims and the passing-on defense

Author

Listed:
  • Frank Verboven
  • Theon Van Dijk

Abstract

We develop a general economic framework for computing cartel damages claims by purchaser plaintiffs. We decompose the lost profits from the cartel in three parts: the direct cost effect (or anticompetitive price overcharge), 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. We subsequently introduce various models of imperfect competition for the plaintiffs industry. This enables us to evaluate the relative importance of the cost, pass-on and output effects. 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 sufficiently many .firms in the plaintiff’s market are affected by the cartel. We derive exact discounts to the direct cost effect, 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, further demonstrating the crucial importance of the output effect. Our results are particularly relevant in light of the recent developments by U.S. and European antitrust authorities to make cartel damages claims more in line with actually lost profits.

Suggested Citation

  • Frank Verboven & Theon Van Dijk, 2007. "Cartel damages claims and the passing-on defense," Working Papers of Department of Economics, Leuven ces0715, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
  • Handle: RePEc:ete:ceswps:ces0715
    as

    Download full text from publisher

    File URL: https://lirias.kuleuven.be/bitstream/123456789/120450/1/Dps0715.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    2. Johan Stennek & Frank Verboven, 2006. "Merger Control and Enterprise Competitiveness: Empirical Analysis and Policy Recommendations," Chapters, in: Fabienne IIzkovitz & Roderick Meiklejohn (ed.), European Merger Control, chapter 4, Edward Elgar Publishing.
    3. David Genesove & Wallace P. Mullin, 1998. "Testing Static Oligopoly Models: Conduct and Cost in the Sugar Industry, 1890-1914," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 355-377, Summer.
    4. Boone, Jan & Müller, Wieland, 2012. "The distribution of harm in price-fixing cases," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 265-276.
    5. ANDERSON, Simon P. & de PALMA, André & THISSE, Jacques-François, 1992. "Interpretations of the logit discrete choice models and the theory of product differentiation," LIDAM Reprints CORE 1017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Maarten Pieter Schinkel & Jan Tuinstra & Jakob Rüggeberg, 2008. "Illinois Walls: how barring indirect purchaser suits facilitates collusion," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 683-698, September.
    7. 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).
    8. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
    9. Corts, Kenneth S., 1998. "Conduct parameters and the measurement of market power," Journal of Econometrics, Elsevier, vol. 88(2), pages 227-250, November.
    10. Margaret C. Levenstein & Valerie Y. Suslow, 2002. "What Determines Cartel Success?," UMASS Amherst Economics Working Papers 2002-01, University of Massachusetts Amherst, Department of Economics.
    11. Werden, Gregory J & Froeb, Luke M, 1994. "The Effects of Mergers in Differentiated Products Industries: Logit Demand and Merger Policy," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(2), pages 407-426, October.
    12. Martin Hellwig, 2006. "Private Damage Claims and the Passing-On Defense in Horizontal Price-Fixing Cases: An Economist’s Perspective," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2006_22, Max Planck Institute for Research on Collective Goods.
    13. repec:hhs:iuiwop:556 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Holler, Emanuel & Rickert, Dennis, 2022. "How resale price maintenance and loss leading affect upstream cartel stability: Anatomy of a coffee cartel," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    2. F. Maier-Rigaud & R. Inderst & U. Schwalbe, 2013. "Quantifizierung von Schäden durch Wettbewerbsverstöße," Post-Print hal-00845779, HAL.
    3. Boone, Jan & Müller, Wieland, 2012. "The distribution of harm in price-fixing cases," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 265-276.
    4. Basso, Leonardo J. & Ross, Thomas W., 2019. "On the harm from mergers in input markets," Economics Letters, Elsevier, vol. 178(C), pages 70-76.
    5. Damien Neven & Hans Zenger, 2008. "Ex Post Evaluation of Enforcement: A Principal-Agent Perspective," De Economist, Springer, vol. 156(4), pages 477-490, December.
    6. Li, Yumin, 2018. "Incentive pass-through in the California Solar Initiative – An analysis based on third-party contracts," Energy Policy, Elsevier, vol. 121(C), pages 534-541.
    7. Dagoumas, Athanasios S. & Polemis, Michael L., 2020. "Carbon pass-through in the electricity sector: An econometric analysis," Energy Economics, Elsevier, vol. 86(C).
    8. Bertram Neurohr, 2016. "A tractable cost pass-through benchmark," Economics Bulletin, AccessEcon, vol. 36(3), pages 1603-1608.
    9. Ulrich Laitenberger & Florian Smuda, 2015. "Estimating Consumer Damages In Cartel Cases," Journal of Competition Law and Economics, Oxford University Press, vol. 11(4), pages 955-973.
    10. Philip G. Gayle & Ying Lin, 2021. "Cost Pass‐Through In Commercial Aviation: Theory And Evidence," Economic Inquiry, Western Economic Association International, vol. 59(2), pages 803-828, April.
    11. Frank P. Maier-Rigaud, 2014. "Toward A European Directive On Damages Actions," Journal of Competition Law and Economics, Oxford University Press, vol. 10(2), pages 341-360.
    12. Garrod, Luke & Han, Tien-Der Jerry & Harvey, James & Olczak, Matthew, 2023. "Cartel Damages Claims, Passing-On and Passing-Back," MPRA Paper 116469, University Library of Munich, Germany.
    13. Willem H. Boshoff, 2015. "Illegal Cartel Overcharges in Markets with a Legal Cartel History: Bitumen Prices in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 83(2), pages 220-239, June.
    14. Robert A Ritz, 2024. "Does competition increase pass‐through?," RAND Journal of Economics, RAND Corporation, vol. 55(1), pages 140-165, March.
    15. Duran-Micco, Elisa & Perloff, Jeffrey M., 2022. "How large are double markups?," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    16. Bet, Germán & Cui, Shana & Sappington, David E.M., 2021. "The impact of vertical integration on losses from collusion," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    17. Moresi, Serge & Zenger, Hans, 2018. "Recapture ratios in merger analysis," Economics Letters, Elsevier, vol. 170(C), pages 136-138.
    18. Sovinsky, Michelle & Helland, Eric, 2019. "Do Research Joint Ventures Serve a Collusive Function?," CEPR Discussion Papers 13533, C.E.P.R. Discussion Papers.
    19. Leonardo J. Basso, 2013. "On input market surplus and its relation to the downstream market game," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(1), pages 266-281, February.
    20. Neurohr, Bertram, 2018. "A merger approach to cartel overcharge analysis," Economics Letters, Elsevier, vol. 168(C), pages 28-30.
    21. Beschorner, Patrick Frank Ernst & Hüschelrath, Kai, 2009. "Ökonomische Aspekte der privaten Durchsetzung des Kartellrechts," ZEW Discussion Papers 09-075, ZEW - Leibniz Centre for European Economic Research.
    22. Doose, Anna Maria, 2013. "Methods for calculating cartel damages: A survey," Ilmenau Economics Discussion Papers 83, Ilmenau University of Technology, Institute of Economics.
    23. Garrod, Luke & Han, Tien-Der Jerry & Harvey, James & Olczak, Matthew, 2023. "Cartel Damages Claims, Passing-On and Passing-Back," MPRA Paper 116471, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    2. Boone, Jan & Müller, Wieland, 2012. "The distribution of harm in price-fixing cases," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 265-276.
    3. Maarten Pieter Schinkel & Jan Tuinstra & Jakob Rüggeberg, 2008. "Illinois Walls: how barring indirect purchaser suits facilitates collusion," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 683-698, September.
    4. Choné, Philippe & Linnemer, Laurent, 2008. "Assessing horizontal mergers under uncertain efficiency gains," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 913-929, July.
    5. Jerome Foncel & Marc Ivaldi & Jrisy Motis, 2008. "An Econometric Workbench for Comparing the Substantive and Dominance Tests in Horizontal Merger Analysis," Working Papers 0833, University of Crete, Department of Economics.
    6. Ivaldi, Marc & Verboven, Frank, 2005. "Quantifying the effects from horizontal mergers in European competition policy," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 669-691, December.
    7. Escrihuela-Villar, Marc, 2011. "On Welfare Effects Of Horizontal Mergers With Product Differentiation," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 16(30), pages 7-12.
    8. Nisvan Erkal & Daniel Piccinin, 2006. "Horizontal Mergers with Free Entry in Differentiated Oligopolies," Department of Economics - Working Papers Series 976, The University of Melbourne.
    9. James Gaisford & Stefan Lutz, 2007. "A Multi-Product Framework Generating Waves of Mergers and Divestitures," ICER Working Papers 36-2007, ICER - International Centre for Economic Research.
    10. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Unilateral Effects," IDEI Working Papers 222, Institut d'Économie Industrielle (IDEI), Toulouse.
    11. Bergman, Mats A. & Jakobsson, Maria & Razo, Carlos, 2005. "An econometric analysis of the European Commission's merger decisions," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 717-737, December.
    12. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics.
    13. Rodney Beard, 2015. "N-Firm Oligopoly With General Iso-Elastic Demand," Bulletin of Economic Research, Wiley Blackwell, vol. 67(4), pages 336-345, October.
    14. Garcia-Gallego, Aurora & Georgantzis, Nikolaos & Gil-Molto, Maria Jose & Orts, Vicente, 2006. "Game-theoretic aspects of international mergers: Theory and case studies," International Review of Law and Economics, Elsevier, vol. 26(3), pages 395-409, September.
    15. Davies, Stephen & Olczak, Matthew & Coles, Heather, 2011. "Tacit collusion, firm asymmetries and numbers: Evidence from EC merger cases," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 221-231, March.
    16. Volker Nocke & Michael D. Whinston, 2010. "Dynamic Merger Review," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1201-1251.
    17. In Lee, 1999. "Non-cooperative Tacit Collusion, Complementary Bidding and Incumbency Premium," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(2), pages 115-134, September.
    18. Brennan, Timothy J., 2000. "The Economics of Competition Policy: Recent Developments and Cautionary Notes in Antitrust and Regulation," Discussion Papers 10716, Resources for the Future.
    19. Tomaso Duso & Lars-Hendrik Röller & Jo Seldeslachts, 2014. "Collusion Through Joint R&D: An Empirical Assessment," The Review of Economics and Statistics, MIT Press, vol. 96(2), pages 349-370, May.
    20. Avalos, Marcos & Schatán, Claudia, 2004. "Condiciones de competencia en el contexto internacional: Cemento, azúcar y fertilizantes en Centroamérica," EGAP Working Papers 2004-08, Tecnológico de Monterrey, Campus Ciudad de México.

    More about this item

    Keywords

    cartel damage claims;

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ete:ceswps:ces0715. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: library EBIB (email available below). General contact details of provider: https://feb.kuleuven.be/Economics/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.