Cartel Damages Claims, Passing-On and Passing-Back

Firms can mitigate the harm of an input cartel by passing on some of the overcharge to their customers through raising their own prices. Recent claims for damages have highlighted that firms may also respond by negotiating lower prices with their suppliers of other complementary inputs, thereby passing back some of the harm upstream. By analysing a model where downstream supply requires two inputs, we derive the equilibrium `passing-on' and `passing-back' effects when one input is cartelised. We show that the cartel causes a larger passing-back effect when there is greater market power in the complementary input sector. This reduces the passing-on effect. We find that the passing-back effect can inflict substantial harm on the complementary input suppliers and reduce the harm inflicted on direct and/or indirect purchasers.