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Umbrella Effects

Author

Listed:
  • Roman Inderst
  • Frank P. Maier-Rigaud
  • Ulrich Schwalbe

Abstract

We analyze the key determinants of umbrella effects, which arise when a cartel causes a price increase or quantity reduction that diverts demand to substitute products. Umbrella effects arise irrespective of whether non-cartelists act as price takers (“competitive fringe”) or respond strategically to the increased demand. Sizable umbrella effects can also arise when non-cartelists are outside the relevant market, as defined by the hypothetical monopolist test (HMT), provided that the cartel’s price increase is substantial. Further, a shift of demand to non-cartelists can also occur when firms that purchase products or inputs from the cartelists pass on the price increase to their rivals that purchase from non-cartelists, who may benefit from higher demand. To identify the actual damage of umbrella effects, it is thus key to take into account the overall adjustments among cartel members and outsiders, as well as among their respective, potentially competing purchasers. We also discuss how future analysis of the endogenous formation of cartels with partial market coverage should inform theories of the determinants of umbrella effects.

Suggested Citation

  • Roman Inderst & Frank P. Maier-Rigaud & Ulrich Schwalbe, 2014. "Umbrella Effects," Journal of Competition Law and Economics, Oxford University Press, vol. 10(3), pages 739-763.
    • Handle: RePEc:oup:jcomle:v:10:y:2014:i:3:p:739-763.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhu009
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    Cited by:

    1. Frank Maier-Rigaud & Ulrich Schwalbe, 2013. "Quantification of Antitrust Damages," Working Papers 2013-ECO-09, IESEG School of Management.
    2. Doose, Anna Maria, 2013. "Methods for calculating cartel damages: A survey," Ilmenau Economics Discussion Papers 83, Ilmenau University of Technology, Institute of Economics.
    3. 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.
    4. Odenkirchen, Johannes, 2017. "Pricing Behavior of Cartel Outsiders in Incomplete Cartels," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168309, Verein für Socialpolitik / German Economic Association.

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    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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