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Umbrella pricing and cartel size

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  • Napel, Stefan
  • Welter, Dominik

Abstract

It is generally assumed that bigger scale and scope of private antitrust enforcement promotes effective competition. This has motivated several North American and European courts to uphold redress claims not only from clients of a detected cartel but also plaintiffs who were exposed to ‘umbrella pricing’, i.e. equilibrium price increases by non-colluding competitors. The paper shows that the presumed deterrence effects of obliging infringing firms to compensate aggrieved customers of non-infringing firms can be dominated by adverse cartel size effects: liability for umbrella damages primarily constrains small partial cartels. It thereby improves the comparative profitability and stability of large ones. More encompassing cartels can form, prices rise, and welfare falls.

Suggested Citation

  • Napel, Stefan & Welter, Dominik, 2023. "Umbrella pricing and cartel size," International Journal of Industrial Organization, Elsevier, vol. 91(C).
  • Handle: RePEc:eee:indorg:v:91:y:2023:i:c:s0167718723001017
    DOI: 10.1016/j.ijindorg.2023.103032
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    References listed on IDEAS

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    More about this item

    Keywords

    Cartel deterrence; Cartel formation; Effective competition; Umbrella effects; Redress payments; Cartel size;
    All these keywords.

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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