Cartel Damages Claims, Passing-On, and Passing-Back

Abstract

Firms can mitigate the harm of an input cartel by passing on some of the higher cost to their customers by raising their own prices. Recent damages claims have highlighted that firms may also respond by reducing the prices that are paid to their suppliers of complementary inputs; the firm thereby passes back some harm upstream. To provide guidance for practitioners as to how such effects together affect the division of the harm, we derive the equilibrium ‘passing-on’ and ‘passing-back’ effects in a successive oligopolies model where one of two inputs is cartelised. We show that the passing-back effect is larger when there is greater market power in the complementary input sector. This reduces the passing-on effect. The complementary input suppliers can incur substantial harm, and the harm that is inflicted on the cartel’s direct and/or indirect purchasers can thereby be reduced.