Regulation and Antitrust - Johannes Kepler University of Linz · 2011-04-11 · Regulation and...

Regulation and AntitrustCollusion and horizontal agreements

Christine Zulehner

Department of EconomicsJohannes Kepler University Linz

Summer term 2011

Zulehner, Regulation and Antitrust 1 / 63

Motivation

Adam Smith (1776) already noticed that

� people of the same trade seldom meet together, even for merrimentand diversion, but the conversation ends in a conspiracy against thepublic, or in same contrivance to raise prices ....

Illustration: newspaper industry in Detroit

� in 1989, Detroit Free Press and Detroit News were allowed to mergealthough they formed a monopoly as Free Press was about to fail

� the two papers further appeared as two entities, but the firm mergedon all other aspects like cost, setting rates, advertising and so on.

� firm acted as a monopoly and we observed a change in profits: eachlost about 10 Mill. a year, afterwards profits were high as 150 Mill


Incentive to collude

Linear demand: p = a − b ∗ q and constant marginal cost: MC = c

Monopoly

� maximize: π = (p − c) ∗ q = (a − bq − c) ∗ q� FOC: dπ

dq = a − 2b ∗ q − c = 0 → q = a−c2b and p = a+c

2

� πM = (a−c)2

4b

Cartel of two firms i = 1, 2: πCarteli = (a−c)2

8b

Cournot competition among two firms i = 1, 2

� maximize π1 = (a − b ∗ (qi − q2) − c) ∗ q1

� FOC: dπ1

dq = a − 2b ∗ q1 − b ∗ q2 − c = 0

� → q1 = a−c3b = q2, q = 2(a−c)

3b and p = a+2c3

� πCournoti = (a−c)2

9b

Price competition among two firms i = 1, 2: πBertrandi = 0


Outline

Collusion and cartels

Collusion theory

Factors that facilitate collusion

Policies against collusion

Calculation of cartel damages

Literature

� chapter 4 in Motta (2004): Competition policy: Theory and practice� chapter 7 in Davis and Garces (2010): Quantitative techniques for

competition and antitrust analysis


Collusion and cartels

What is collusion?

� since total industry profits in oligopoly are always lower than monopolyprofits, firms will attempt to establish agreements among each other toeliminate competition

What is a cartel?

� institutional form of collusion� attempt to enforce market discipline and reduce competition between a

group of suppliers� cartel members agree to coordinate their actions (prices fixing, quotas,

consumer allocation, bid rigging)� prevent excessive competition between the cartel members� secret agreements, because cartels illegal in the US and EU

Tacit collusion: mutual understanding without explicit agreement


Incentives to cheat

Main problem with cartel agreements as well as tacit collusion

� temptation to cheat on competitors� if all other firms stick to the agreement, you can increase profits by

deviating and stealing your rivals’ business (undercutting, violatingterritories, etc)

� comparable to a Prisoner’s dilemma

To sustain collusion, cartel must be able to

� detect deviators: can you give an answer to a question like “Have pricesdecreased as someone deviated or as demand decreased?”

� punish the deviator(s): which strategies are possible?


The diamond cartel

De Beers established in South Africa in 1888 by Cecil Rhodes

� owned all diamond mines in South Africa� had joint ventures in Namibia, Botswana, Tanzania� controlled diamond trade (mines → cutters and polishers) through

“Central Selling Organization” (CSO), processing about 80% of worldtrade

CSO’s services for the industry

� expertise in classifying diamonds� stabilizing prices (through stocks of diamonds)� advertising diamonds


The diamond cartel cont’d

Huge temptation for mining companies to bypass CSO and earn highmargins themselves

In 1981, President Mobutu announced that Zaire (world’s largest supplier ofindustrial diamonds) would no longer sell diamonds through the CSO

Two months later, about 1 million carats of industrial diamonds flooded themarket, price fell from $3 to less than $1.80 per carat

Supply of these diamonds unknown, but very likely retaliation by De Beers

In 1983, Zaire renewed contract with De Beers, at less (!) favorable termsthan before


The law

Cartel laws make cartels nowadays illegal in the US and Europe

� US: jail sentences (DRAM cartel)� exception in the US: export cartels� exception in Austria: “Bagatellkartelle”

Cartels have always been with us and still are

Some are explicit and difficult to prevent (OPEC)

Other less explicit attempts to control competition

Authorities continually search for cartels

� improving methods detecting cartels like price screening� leniency programs� have been successful in recent years (nearly $1 billion in fines in 1999)


The vitamin cartel

EC has found that 13 European and non-European companies participatedin cartels aimed at eliminating competition in the vitamin A, E, B1, B2, B5,B6, C, D3, Biotin (H), Folic Acid (M), Beta Carotene and carotinoidmarkets.

A striking feature of this complex of infringements was the central roleplayed by Hoffmann-La Roche and BASF, the two main vitamin producers,in virtually each and every cartel, whilst other players were involved in only alimited number of vitamin products → severity of punishment

Firm Country Fines in mill AC

Hoffman-La Roche AG Switzerland 462.00BASF AG Germany 296.00Aventis SA France 5.04Solvay Pharmaceuticals Netherlands 9.10Merck KgaA Germany 9.24Daiichi Pharmaceuticals Co Ltd Japan 23.40Eisai Co Ltd Japan 13.23Takeda Chemical Industries Ltd Japan 37.05


Collusion theory

Noncooperative collusion in a static model vs. repeated games

� dominant firm model� dynamic strategies


� market structure� price transparency and exchange of information� pricing rules (facilitating practices)

Further reading

� imperfect information and non-cooperative collusion (Greene andPorter 1984)

� price wars during booms (Rotemberger and Saloner 1986)� impact of cyclical demand movements on collusive behavior

(Haltiwanger and Harrington 1986)� collusion with capacity constraints (Fabra 2006)


Noncooperative collusion in a static model

N firms produce a homogenous product

let the inverse demand function be linear

� p = a − bQ with Q =∑N

i=1 qi

constant average and marginal cost

� c(qi) = c

F of the N firms form the fringe

each firm in the fringe acts as a Cournot quantity setting oligopolist

� it maximizes its own profit taking the the output of the other firms asgiven

the remaining K firms restrict output and maximize joint profits taking thebehavior of the fringe into account



profit maximization

� maxπj = pqj − cqj = (a − bQ)qj − cqj

� FOC:∂πj

∂qj= (a − bQ) − bqj − cqj = 0

� → 2bqj = a − c − bQK − bQF−j

each fringe firm selects output along a best-response curve

� qj = 12 (S − QK − bQF−j)

� with S = a−cb and QK =

∑Kk=1 qk the output of the restrictive group

� QF−j is the combined output of all fringe firms except firm j

in equilibrium all fringe firms produce the same output

� QF−j = (F − 1)qj

� qj = 12 (S − QK − bQF−j)

� qj = S−QK

F−1 and QF = F S−QK

F+1



residual demand function the restrictive group is facing

� p = a − b(QK − QF )� p = c + b

F+1 (S − QK )

profit maximization

� maxπk = pqk − cqk

given residual demand, the profit maximizing per firm and total output are

� qk = 1K

12S and QK = 1

2S

the output restricting group acts as Stackelberg leader

� qf = 1F+1

12S and p = c + 1

F+112bS

profits per firm of firms inside and outside the restrictive group

� πk(F , K ) = bK(F+1)

12S and πf (F ) = b

(F+1)2 (12S)2



questions: is this a stable situation? is there an incentive to deviate?

assume first, all firms restrict output

� such a situation is stable if� πk(0, N) ≥ πf (1) → N ≤ 4� if there are four or less than four firms then output restriction is stable;� if there are more than four firms that restrict output, each firms share

of the monopoly profit is too small; each firms should defect and act asan independent Cournot firm



if the number of fringe firms is positive, the conditions for internal andexternal stability can be rewritten as

� F + 1 + 1F ≤ K ≤ F + 3 + 1

F+1� necessary and sufficient condition for internal stability: no restricting

firm wants to deviate� necessary and sufficient condition for external stability: no fringe firm

wants to deviate

� enough firms in the fringe so that fringe profits are not too great andoutput restricting firms have no incentive to join the fringe

� enough firms restricting output so that fringe firms do not want to jointhe output restricting firms

� since F and K are integers, this implies that if there are F firms in thefringe, output restriction is stable only if output restriction is by groupsof F + 2 or F + 3 firms


Noncooperative collusion in repeated games

static models omit an essential element of the cost of defecting from anoutput restricting equilibrium

� profit lost once rivals realize that the agreement is being violated

when firms deviate, the equilibrium output of all firms increases

other firms observe that and react by also deviating and producing moreoutput

whether output restriction is stable in a dynamic sense depends on a singlefirm’s present value of short-term gains from output expansion

firms compare future discounted profits to short-run gains due to deviation

such a trade-off cannot be analyzed in a static game


Cartel stability

in general, cartels are unstable

can we find mechanisms that give stable cartels?

� violence is one possibility!� suppose that the firms interact over time� make cheating unprofitable: reward “good” behavior, punish “bad”

behavior

ingredients necessary to enforce collusion

� timely detection of deviations from collusive actions� credible mechanism for the punishment of deviations� threat of punishment prevents firms from deviating


Incentive to deviate

Cournot with two firms i = 1, 2

� linear demand p = a − b ∗ (q1 + q2) and constant marginal cost c� maximize π1 = (a − b ∗ (q1 − q2) − c) ∗ q1

� FOC: dπ1

dq1= a − 2b ∗ q1 − b ∗ q2 − c = 0

� → q1 = a−c3b = q2 and p = a+2c

3

� profits: π1 = (a−c)2

9b = π2

firm 1 sticks to the collusive agreement and firm 2 deviates by playing a bestresponse

� profits of firm 1: πcollude1 = 3(a−c)2

8∗4b

� profits of firm 2: πdeviate2 = 9(a−c)2

8∗8b > πcollude1


Repeated games

formalizing these ideas leads to repeated games

� a firm’s strategy is conditional on previous strategies played by the firmand its rivals

profits from cheating are taken into account

repeated games can become very complex

� strategies are needed for every possible history

but some “rules of the game” reduce this complexity

� Nash equilibrium reduces the strategy space considerably


Finite vs. infinite games

number of periods played is known and finite

� credibility of punishment strategies and possibility of cooperationdisappears

� backward induction� Selten theorem: if a game with a unique Nash equilibrium is played

finitely many times, its solution is that Nash equilibrium played everytime

suppose the cartel expects to last indefinitely

� equivalent to assuming that the last period is unknown� every period there is a finite probability that competition will continue� now there is no definite end period� so it is possible that the cartel can be sustained indefinitely


Noncooperative collusion in a repeated game

Intuition: cartels solve the cheating problem by threatening to punishdeviators in the future

� homogenous good duopoly� constant symmetric MC� in each period t = 1, 2, 3, . . . , firms simultaneously set prices� “repeated Bertrand game”

Equilibrium?

One possibility

� Bertrand equilibrium (i.e. p1 = p2 = MC) in each period t = 1, 2, 3, . . .


Noncooperative collusion in a repeated game cont’d

Another possibility

� collusive equilibrium (p > MC)

Suppose firms play “grim trigger strategies”:

� in the first period, both firms set pM (monopoly price), and shareprofits πM equally.

� in any of the following periods: firm sets pM if both firms set pM ineach preceding period

� if instead one of the firms violated the collusive agreement (price belowpM in previous period), then both firms set p = MC forever(“punishment” or “retaliation”)

Is this enough to keep firms from cheating?


Noncooperative collusion in a repeated game cont’d

If both firms stick to the collusive agreement, each has expected discountedprofits as

� 0.5πM + 0.5δπM + 0.5δ2πM + . . . = 0.5πM1

1−δ� where δ < 1 is the discount factor

If firm 1 deviates today:

� undercut firm 2, make profits πM today� from tomorrow onwards, p = MC, and so π = 0

→ Is collusion better than deviation?

� incentive constraint: 0.5πM1

1−δ ≥ πM + 0� which holds whenever δ ≥ δ∗ = 0.5� with δ∗ the critical discount factor


State games

assume there is a sequence of discrete time points

� at each point in time firms play a static game� repeated game� example: Cournot

a strategy vector s∗ ∈ S = (S1, . . . , Sn), the strategy set, is anoncooperative equilibrium if each element of s∗ maximizes thecorresponding player’s payoff taking other elements of s∗ as given

πi (s∗) = maxsi∈Si πi (s

∗1 , . . . , s∗i−1, si , s

∗i+1, . . . , s

∗n ), i = 1, . . . , n

Friedman (1971) proofed the existence of an equilibrium


Strategies in a state game

how does the firm react when, for example, another firm deviates from acartel behavior

strategies describe behavior of the firm

example: trigger strategies

� let sncc be the strategy of the noncooperative collusion, i.e. firmsrestrict their output

� let snash be the strategy that gives the Nash outcome, in our example:Cournot

a trigger strategy is then

� 1: each player begins by playing his or her part of sncc and continues todo as long as all other players do the same

� 2: revert to snash in the period following any defection from sncc andcontinue to play snash forever


Profits in each period and future discounted profits

πi ,nash < πi ,ncc < πi ,defect

such a condition holds, if the static game is Cournot, the demand function islinear, marginal cost is constant and the same for all firms

and the sncc strategy means that each firm produces 1n of the

noncooperative collusive output

PDVi ,ncc = απi ,ncc + α2πi ,ncc + . . . = α1−απi ,ncc

� with α the discount factor

PDVi ,defect = απi ,defect + α2πi ,nash + . . . = απi ,defect + α2

1−απi ,nash

compare discounted profits from the period of defection onwards

wlog we assume that this is the first period


Equilibrium

for a trigger strategy to be a noncooperative equilibrium, the payoff functionadhering to the trigger strategy must be at least as great as the payoff fromdefection, i.e. PDVi ,ncc ≥ PDVi ,defect

PDVi ,ncc ≥ PDVi ,defect if α ≥ πi,defect−πi,ncc

πi,defect−πi,nash

or using α = 11+r if 1

r ≥ πi,defect−πi,ncc

πi,defect−πi,nash

this is always fulfilled, if r is sufficiently close to zero

or, α is sufficiently close to one, i.e. the future has the same importance asthe presence

if α is large enough, collusion can be sustained


Equilibrium

one can also show that the equilibrium is subgame perfect

the result is that the trigger strategy sustains output paths that allow eachplayer to earn more than with Cournot output

example of Folk Theorem

� states that noncooperative behavior can sustain any strategy producingindividual profits larger than Nash profits, if r is sufficiently small


Other strategies

trigger strategy: severe threat

� as usual - people forget or they do not want to be that harsh� others know that, thus to stick to the Nash after defection might not

be credible� we search for strategies that are less grimm than trigger strategies

stick and carrot

tit for tat


Coordination on the collusive price

Which collusive price? → problem of coordination

� tacit collusion: costly experimentation to coordinate on a collusiveoutcome, risk of triggering price wars

� explicit collusion: firms coordinate on collusive outcome and avoidproblems due to shock adjustments

� market sharing schemes: possible to adjust to cost and demand shockswithout triggering price wars

� firms will try to talk in order to coordinate!



Market structure

Price transparency and exchange of information

Pricing rules (facilitating practices)


Market structure

Concentration: collusion is normally easier to maintain among few (andsimilar) firms

� πM

n (1 + δ + δ2 + . . .) = πM

n1

1−δ ≥ πM + 0� δ > 1 − 1

n

Entry: if entry barriers are high, collusion is easier to sustain

Cross-ownership: reduces incentives to cheat, hence facilitates collusion

Regularity and frequency of orders: allow for easy detection and timelypunishment, hence facilitate collusion

Buyer Power: strong buyers can play off rivals against each other →discourages collusion


Market structure cont’d

Random shocks to demand: make it harder to detect deviation → discouragecollusion

Steady demand growth: makes punishment more effective → facilitatescollusion

Product homogeneity: has ambiguous effect on collusion

Symmetry: more equal distribution of assets facilitates collusion

Multi-market contacts: allow firms to leverage punishment into othermarkets, hence facilitating collusion

Inventories and excess capacity: have ambiguous effect on collusion


Price transparency and exchange of information

observability of firms’ actions facilitate enforcement

� when prices are unobservable and demand is subject to shocks:deviation is difficult to identify → collusion more difficult (possiblyinvolving temporary “price wars”)

information exchange of past/present prices and quantities: detailed infolikely pro-collusive

� frequency auctions: simultaneous ascending auctions� code for a certain region = 02, then firms used a price like 1002 to

indicate their interest in this region� in Germany the auction design requested 10% increases when rasing

bids: Mannesmann signaled to share the market by bidding 18.8 millDM on blocks 1-5 and 20.0 mill DM on blocks 6-10 → why differentbids for equal products? as an answer, managers of T-Mobil increasedto 20.0 DM on the blocks 1-5


Price transparency and exchange of information cont’d

public announcements

� Telekom Austria cited in the newspapers:� “it would be satisfied with 2 out of the 12 blocks of frequencies on

offer”, but “it would bid for a 3rd block if one of its rivals did”

“collusive price” is often ambiguous (may need to be adjusted from time totime) → exchange of information on future prices/quantities


Pricing rules (facilitating practices)

Most favored nation (or most favored costumer) clause

� engages a seller to apply to a buyer the same conditions offered (by thesame seller) to other buyers

� engagement to not price discriminate → make it costly to give pricediscount

� collusion: harder to deviate and costly to carry punishment

Meeting-competition clauses

� if the buyer gets a better price from another seller, the current sellerwould match the price

� clause works as an information device and reduces incentive to deviate

Resale price maintenance

� vertical price agreement → vertical restraints and vertical mergers


Practice: What should be legal and what illegal?

Standards of proof: market data vs. hard evidence

Ex-ante Competition policies against collusion

Ex-post Competition policies against collusion


Standards of proof: market data vs. hard evidence

Inferring collusion from data

� price levels: what is a high prices? estimation price-cost marginswithout cost data

� evolution of prices: price parallelism is not a proof of collusion(common shocks)

� conclusion: econometric tests as complementary evidence, not proof ofcollusion (results sensitive to different techniques used)

Hard evidence

� communication on prices or coordination on facilitating practices� focus on observable elements verifiable in courts, to preserve legal

certainty: fax, e-mail, phone calls, video etc.


Ex-ante competition policies against collusion

avoid formation of cartels

deterrence of collusion: close monitoring and high fines, possibly prisonsentences for managers (like US)

black list of facilitating practices might deter collusion and free resources forcartel detection

� private announcements of future prices/outputs� exchange of disaggregate current/past information

good auction design to avoid bid-rigging

merger control (joint dominance)


Ex-post competition policies against collusion

surprise inspections (“Dawn Raids”)

� to find hard evidence of collusion

leniency programmes

� introduced in the US in 1978 (reformed in 1993), in EU in 1996


Calculation of cartel damages

Main effects of a price fixing cartel

Methods to calculate “but for” prices

Pass on defense


Main effects of a price fixing cartel

cartel overcharge harm: effect of higher prices on actual consumers

lost volume effect: effect of higher prices on lost consumers/loss of volume toactual consumers


How are profits of consumers affected?

decomposition of profits of purchasing firm

� π = (p − c)q� Δπ = −qΔc + qΔp + (p − c)Δq

direct cost effect: overcharge times number of purchased quantity

pass on: depends on the extent to which the price increase caused by thecartel is passed along the supply chain

output effect: reduced profits as a lower quantity is sold


Distribution of cartel overcharges

in 93% of the cases, overcharge in % of the cartel price is above zero

small but significant proportion of cartels with no overcharge


Involved parties


Dynamic effects

market structure and market functioning

� reduction in rivalry between firms can result in lower levels ofinnovation

� slowing down in the rate at which improvements in efficiency areachieved

� inefficient firms do not leave market� distortions in the downstream markets due to higher input costs

consequences

� for example, the counterfactual price may have been even lower (andhence the overcharge even higher) if the market had seen cost-reducinginnovations in the absence of the cartel

� however, it may be difficult to demonstrate a causal link between theinfringement and the alleged longer-term harm


Calculate the damages

calculation of the price-overcharge “rectangle”

� period of time during which the conspiracy had an effect on prices� prices at which the conspirators sold their output

� also relevant: prices of (non-conspiring) competitors of the conspirators,who might adjust their prices in the light of the conspirators’ prices

� “but for” prices that would have prevailed in the market in the absenceof the conspiracy

� should include the “but for” prices of the non-conspiring competitors

� the quantities sold by the conspirators during the period of theconspiracy

� the quantities sold by the non-conspiring competitors

calculation of the deadweight welfare loss “triangle” needs one further pieceof information

� price-elasticity of demand for the product


Methods to calculate “but for” prices

comparator based methods and models

� before and after, yardstick� comparison of means, time series models, difference-in-difference� determinants of prices, forecasting

financial analysis based methods and models

� cost based analysis

market structure based methods and models

� theoretical/structural models� static vs. dynamic models


Before and after

comparison of data on companies (or markets) involved in the antitrustinfringement in a particular period with data on the same companies (ormarkets) in a period without the violation

comparisons

� before and during; during and after; before, during and after� pre-infringement data is not contaminated by the cartel� time after the cartel is obviously most recent, but the unwinding of the

cartel is perhaps not over

we would like to measure deviations from the long-run equilibrium path

appropriate when cartel period is rather short and the cartel does not inducea change in the long-run equilibrium path

example: Grazer Fahrschulen


Time series comparison


Yardstick

cross-sectional comparator-based approach

similar markets with and without a cartel are compared

appropriate with local markets

however, where there is a risk that these comparable markets may also havebeen cartelized, other methods should be considered

in combination with time series data: difference-in-difference

example: Lombard cartel


Comparison of means or regression analysis

a comparison of means across regions or firms is applicable if there is atreatment effect

treated and non-treated are otherwise the same, but for the treatment, i.e.,the cartel

regression analysis can account for differences in observables

� regions are not the similar, but differ in observable demandcharacteristics like population density

� Yi = α + βXi + δDi + εi

� similar considerations for firms


Comparison of means or regression analysis

comparison over time

� ARIMA models: price data is forecasted using only past observations ofprice

� cointegration and VEC models: it is possible to account for demandand supply and other observables

difference-in-difference

� infringement vs. non-infringement market in addition to period beforeand during infringement

� variations across firms and time are exploited� damage estimate = (period during)i - (period before)i minus (period

during)ni - (period before)ni


Regression analysis: determinants of prices

Dummy variable approach

� price = f(cartel, determinants like product characteristics)� data for different time periods or different regions� for the estimations all data is used

Residual approach

� price = f(determinants)� different time periods or different regions� for the estimations data of non-cartel regime is used and predicted for

the cartel regime

implicit assumption: coefficients of the determinants are constant overperiods or regions

hedonic pricing: coefficients capture demand and supply factors


Bid-rigging in procurement auctions

procurement auctions: lowest bid wins

mechanism to collude

� division of the market� inflated bids� side payments

in any case, the expected winning bid will be higher

Porter and Zona (1999)

� research question: how can we detect cartels?� application: detecting cartels in the Ohio school milk market� econometric approach

� compare markets with collusion with control group: same time,different regions

� in which districts do firms submit bids?� how high are the submitted bids?


Cost based approaches

average cost + competitive profit margin

estimation of competitive price based on past margins

cost: balance sheet data

profit margin: recover cost of capital to invest in the firm, includes risk

more applicable when parties involved are companies as opposed toindividual consumers


Market structure based

based on an IO model the “but for” price is simulated

estimation of marginal cost, demand elasticity using data on prices andquantities

various static oligopoly models

� Bertrand competition� Cournot competition� Stackelberg model� Dominant firm model

dynamic considerations

� output decisions of today influence a firm’s cost structure in the futureby learning effects

� entry and exit in the industry


Cournot model: competition in quantities

there are i = 1, . . . , n firms that maximize their profits πi

πi = p(q)qi − cqi

FOC: ∂p(q)∂q qi + p(q) − c = 0

Lerner index: p(q)−cp(q) = si

μ with si = qi

q and 1μ = −∂p(q)/p(q)

∂q/q

cartel overcharge

� factual is a cartel, i.e., a monopoly with firms maximizing joint profits:

m = p(q)−cp(q)

� counterfactual is an oligopoly with N firms: m(N − 1)/(N + 1)

the lost-volume effect triangle as a proportion of the overcharge rectangle isequal to (N − 1)/2(N + 1)


Relation b/w number of firms and lost volume effect


Structural approach

Lerner index: p(q)−cp(q) = si

μ with si = qi

q and 1μ = −∂p(q)/p(q)

∂q/q

rewrite: μ p(q)−cp(q) = λ (elasticity adjusted Lerner index)

� λ = 0 for perfect competition� λ = 1

n for Cournot� λ = 1 for a cartel

estimation of marginal cost c using price and quantity data

inverse merger simulation that could also take changes in marginal cost intoaccount

if we also estimate λ, then we already now the extend of the cartel


Moving from the factual/counterfactual to a final value

time period of the damage compared to the time period of the estimations

summation of losses over time, if the damages claim stretches over multipleyears

uprating and/or discounting cash flows to take into account the logic oftime value of money

interest from the time the damage occurred until the capital sum awarded isactually paid

consider taxes


Pass-on defense

under which circumstances is it plausible that the overcharge was passed onto end-consumers

determinants

� a distinction must be made between firm-specific and industry-widecost increases

� what is the competitive environment

extend of pass-on

� low pass-on: firm-specific cost increase, i.e., only the defendant isconcerned, and high degree of competition

� high pass-on: under perfect competition, an overcharge that affects allcompetitors in a downstream market (industry-wide) would be passedon in full

� medium pass-on: high concentration and industry-wide cost increases


Regulation and Antitrust - Johannes Kepler University of Linz · 2011-04-11 · Regulation and...

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