Illinois Walls

M.P. Schinkel, Jan Tuinstra and J. Rueggeberg ()
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J. Rueggeberg: Universiteit van Maastricht

No 04-03, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: In its landmark ruling in Illinois Brick Co. v. Illinois, the U.S. Supreme Court restricted the right to sue for private damages suffered from violations of section 4 of the Clayton Act to direct purchasers. Despite the fact that typically antitrust injury is, at least in part, passed on to firms lower in the production chain and ultimately to consumers, Illinois Brick has since stood as a binding legal constraint. This paper considers the strategic use that upstream firms can make of Illinoi Brick to shield themselves from private damages claims. In a repeated game setting, we find that Illinois Brick may facilitate upstream firms in engaging horizontally in an overt collusive arrangement, with concealed side-payments to their direct purchasers that discourage them from filing suit. An example is given of such an `Illinois Wall', in which downstream firms are given part of the upstream cartel profits through a symmetric rationing of their inputs at low prices. The Illinois Wall is found to be resilient to entry, imperfections of the legal system and leniency programs. In fact, the wall is particularly stable when competition is relatively strong at both the up- and the downstream level.

Date: 2004
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Illinois Walls (2005)
Working Paper: Illinois walls (2003)
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