Cartel Damages Claims and the Passing-on Defence

Frank Verboven and Theon Van Dijk

No 6329, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Cartels; Damages; Passing-on defence (search for similar items in EconPapers)
JEL-codes: L40 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: CARTEL DAMAGES CLAIMS AND THE PASSING‐ON DEFENSE* (2009)
Working Paper: Cartel damages claims and the passing-on defense (2007)
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