Cartel Damages Claims and the Passing-On Defense

32 Pages Posted: 25 Oct 2007

See all articles by Frank Verboven

Frank Verboven

KU Leuven - Faculty of Business and Economics (FEB)

Theon van Dijk

Lexonomics

Date Written: May 2007

Abstract

We develop a general economic framework for computing cartel damages claims by purchaser plaintiffs. We decompose the lost profits from the cartel in three parts: the direct cost effect (or anticompetitive price overcharge), 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. We subsequently introduce various models of imperfect competition for the plaintiffs industry. This enables us to evaluate the relative importance of the cost, pass-on and output effects. 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 sufficiently many firms in the plaintiff's market are affected by the cartel. We derive exact discounts to the direct cost effect, 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, further demonstrating the crucial importance of the output effect. Our results are particularly relevant in light of the recent developments by U.S. and European antitrust authorities to make cartel damages claims more in line with actually lost profits.

Suggested Citation

Verboven, Frank and Dijk, Theon van, Cartel Damages Claims and the Passing-On Defense (May 2007). Available at SSRN: https://ssrn.com/abstract=1024469 or http://dx.doi.org/10.2139/ssrn.1024469

Frank Verboven (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Theon van Dijk

Lexonomics ( email )

Grensstraat 81
Brussels, 1970
Belgium

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