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Illinois Walls

Author

Listed:
  • Maarten Pieter Schinkel

    (Department of Economics, Universiteit van Amsterdam)

  • Jan Tuinstra

    (Faculty of Economics and Econometrics, Universiteit van Amsterdam)

  • Jakob Rüggeberg

    (LECG, Madrid and Brussels)

Abstract

In its landmark ruling in Illinois Brick Co. v. Illinois in 1977, the U.S. Supreme Court restricted standing to sue for recovery of antitrust damages to direct purchasers. However, antitrust damages are typically (in part) passed on to intermediaries lower in the chain of production and ultimately to consumers. We show that the Illinois Brick rule facilitates collusion. It allows an upstream cartel to shield itself from private damage claims by forwarding a share of cartel profits to its direct purchasers. These benefits dissuade the direct purchasers from exercising their exclusive right to sue for private damages. The cartel can achieve this by rationing inputs at low prices. Several U.S. antitrust cases show symptoms of "Illinois Walls." This discussion paper has resulted in an article in the RAND Journal of Economics , 39(3), 683-99.

Suggested Citation

  • Maarten Pieter Schinkel & Jan Tuinstra & Jakob Rüggeberg, 2005. "Illinois Walls," Tinbergen Institute Discussion Papers 05-049/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20050049
    as

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    File URL: https://papers.tinbergen.nl/05049.pdf
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    Other versions of this item:

    • Schinkel, M.P. & Tuinstra, J. & Rueggeberg, J., 2004. "Illinois Walls," CeNDEF Working Papers 04-03, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    • Schinkel, M.P. & Tuinstra, J. & Rueggeberg, J., 2003. "Illinois walls," Research Memorandum 012, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

    References listed on IDEAS

    as
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    2. Baker, Jonathan B, 1988. "Private Information and the Deterrent Effect of Antitrust Damage Remedies," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(2), pages 385-408, Fall.
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    4. Snyder, Edward A, 1985. "Efficient Assignment of Rights to Sue for Antitrust Damages," Journal of Law and Economics, University of Chicago Press, vol. 28(2), pages 469-482, May.
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    9. McCutcheon, Barbara, 1997. "Do Meetings in Smoke-Filled Rooms Facilitate Collusion?," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 330-350, April.
    10. Besanko, David & Spulber, Daniel F, 1990. "Are Treble Damages Neutral? Sequential Equilibrium and Private Antitrust Enforcement," American Economic Review, American Economic Association, vol. 80(4), pages 870-887, September.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. Maarten Pieter Schinkel & Jan Tuinstra & Jakob Rüggeberg, 2008. "Illinois Walls: how barring indirect purchaser suits facilitates collusion," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 683-698, September.

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    More about this item

    Keywords

    Antitrust; treble private damages; Illinois Brick; tacit collusion; vertical restraints; rationing;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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