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Cartel Damages Claims And The Passing‐On Defense

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  • FRANK VERBOVEN
  • THEON van DIJK

Abstract

We develop a general framework for computing cartel damages claims. We decompose a direct purchaser plaintiff's lost profits in three parts: the price overcharge, the pass‐on effect and the output effect. The output effect is usually neglected: it is the lost business resulting from passing on the price overcharge. To evaluate the relative importance of the three effects, we introduce various models of imperfect competition for the plaintiff's industry. We show that the passing‐on defense generally remains justified after accounting for the output effect, provided that the cartel affects a sufficient number of firms. We derive exact discounts to the price overcharge, and illustrate how to compute these in the European vitamin cartel. We finally extend our framework to measure the cartel's total harm, i.e., the total damages to direct purchasers and their consumers.

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  • FRANK VERBOVEN & THEON van DIJK, 2009. "Cartel Damages Claims And The Passing‐On Defense," Journal of Industrial Economics, Wiley Blackwell, vol. 57(3), pages 457-491, September.
  • Handle: RePEc:bla:jindec:v:57:y:2009:i:3:p:457-491
    DOI: 10.1111/j.1467-6451.2009.00390.x
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    Cited by:

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    2. Neurohr, Bertram, 2018. "A merger approach to cartel overcharge analysis," Economics Letters, Elsevier, vol. 168(C), pages 28-30.
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    4. Gordon Jochem Klein & Ralph Bernd Siebert & Ralph Siebert, 2024. "Why Do Prices Differ Across Stores? Differential Competition Environments and Their Price Impacts," CESifo Working Paper Series 11344, CESifo.
    5. Duran-Micco, Elisa & Perloff, Jeffrey M., 2022. "How large are double markups?," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    6. Sovinsky, Michelle & Helland, Eric, 2019. "Do Research Joint Ventures Serve a Collusive Function?," CEPR Discussion Papers 13533, C.E.P.R. Discussion Papers.
    7. 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.
    8. 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.
    9. Sander Heinsalu, 2023. "Bounds on the damages from a price overcharge," Economics Bulletin, AccessEcon, vol. 43(3), pages 1265-1270.
    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. 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.
    12. Dagoumas, Athanasios S. & Polemis, Michael L., 2020. "Carbon pass-through in the electricity sector: An econometric analysis," Energy Economics, Elsevier, vol. 86(C).
    13. 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).
    14. Bertram Neurohr, 2016. "A tractable cost pass-through benchmark," Economics Bulletin, AccessEcon, vol. 36(3), pages 1603-1608.
    15. F. Maier-Rigaud & R. Inderst & U. Schwalbe, 2013. "Quantifizierung von Schäden durch Wettbewerbsverstöße," Post-Print hal-00845779, HAL.
    16. Doose, Anna Maria, 2013. "Methods for calculating cartel damages: A survey," Ilmenau Economics Discussion Papers 83, Ilmenau University of Technology, Institute of Economics.
    17. 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.
    18. 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.
    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. 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.
    21. Robert A Ritz, 2024. "Does competition increase pass‐through?," RAND Journal of Economics, RAND Corporation, vol. 55(1), pages 140-165, March.
    22. Basso, Leonardo J. & Ross, Thomas W., 2019. "On the harm from mergers in input markets," Economics Letters, Elsevier, vol. 178(C), pages 70-76.
    23. Damien Neven & Hans Zenger, 2008. "Ex Post Evaluation of Enforcement: A Principal-Agent Perspective," De Economist, Springer, vol. 156(4), pages 477-490, December.
    24. Garrod, Luke & Li, Ruochen & Russo, Antonio & Wilson, Chris M, 2024. "Understanding Cost Pass-Through when Prices are Dispersed," MPRA Paper 123285, University Library of Munich, Germany.
    25. 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).

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

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