The role of ‘standard economic theory’ and the pass on defence in competition law-related litigation

It is typical in competition law-related litigation for damages claims to be brought by companies who have been overcharged for a product or service. A standard defence is that the claimants passed on the overcharge to buyers of their own products and services, thus reducing or eliminating their losses. Typically, ‘standard economic theory’ is cited to support this argument. However, standard economic theory offers no universal prediction for how firms will respond to a cost increase. Instead, economic theory says that the extent of pass on is dictated by a range of internal and external factors, ultimately implying a whole spectrum of possible rates of pass on.