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Cartel Damages: On the Commission’s Call for “Simplified Rules on Estimating the Loss”

This paper explores the challenges in estimating antitrust damages and discusses the need for a comprehensive approach that considers both upstream and downstream effects. It also examines recent developments in European antitrust damages claims and provides insights on the measurement of harm.

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Cartel Damages: On the Commission’s Call for “Simplified Rules on Estimating the Loss”

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  1. Cartel Damages: On the Commission’s Call for “Simplified Rules on Estimating the Loss” Maarten Pieter Schinkel University of Amsterdam and ACLE CCP 5th Annual Conference Cartels and Tacit Collusion Norwich, 18-19 June 2009

  2. Damages tend to percolate through the chain of production

  3. U.S. Antitrust Damages Practice • Clayton Act (1914), Section 4: • “Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws […] shall recover threefold the damages by him sustained. • Mandeville Island Farms (1948): wide interpretation of “Any person” • American Crystal Sugar (1952): overcharge as measure of harm • Hanover Shoe (1968): passing-on defense denied • Illinois Brick (1977): standing restricted to direct purchaser • Contractors v. Carpenters (1983): upstream excluded from “zone of harm”

  4. The Overcharge as Measure of Harm

  5. Antitrust Damages Claims are Coming to Europe • Encouraged by the European Commission • Full legal standing – Courage (2001), Manfredi (2006) • Passing-on defense allowed • No punitive damages – but pre-trial interest • No opt-out class actions – some opt-in initiatives (CDC) • No/limited possibilities for contingency fees • Hardly a (visible) practice yet – but some seminal initiatives

  6. White Paper (April 2008)

  7. Draft Directive (informally circulated April 2009)

  8. Some Recent Contributions to the Debate • Kosicki and Cahill (2006) – survey pass-on in US context • Hellwig (2006) – monopoly pass-on equals DWL • Verboven and van Dijk (2007) – discounts for marginal price increases • Basso and Ross (2007) – discounts for discrete price increases • Boone and Mueller (2008) – consumer harm share • Basic three layer model • Upstream cartel

  9. A Model of Total Chain Antitrust Damages

  10. Decomposition of Harm, 1/2 Downstream Effects

  11. Decomposition of Harm, 2/2 Upstream and Consumer Effects

  12. Upstream Damages: An Undercharge

  13. Direct Purchaser Overcharge as Denominator

  14. Model Specifications

  15. Conclusions • The direct purchaser overcharge equals the sum of all downstream pass-ons • Yet, it misses all output effects and consumer DWL • The direct purchaser DWL is not a good proxy of total chain DWLs • The overcharge method is more off, the closer the cartel is to end consumers • Upstream damages can be relatively large • Why restrict sophisticated econometrics to but-for only? • ‘Collect first, redistribute later’ only works for direct purchaser overcharge • Little hope for “simplified rules on estimating the loss” (EC, 2008) • 100% pass-on presumption further complicates approximate quantification • Upstream cartel effects should be properly viewed as antitrust damages

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