A Primer on Damages of Cartel Suppliers – Determinants, Standing US vs. EU and Econometric Estimation

Private enforcement of competition law is on the rise worldwide and a major item on the EU competition policy agenda. The relevant provisions in the EU and the US confer a right to damages to "any individual" and "any person" harmed by a cartel. However, while there is much research about actions for damages by cartel customers, the question whether and how other parties that may incur losses due to a cartel can obtain damages is usually neglected and largely open in Europe. This paper analyses the issue with respect to suppliers of a downstream cartel from a comparative law and economics perspective.

First, we show that the losses such cartel suppliers incur are driven by three effects: Cartel members lower sales and correspondingly their input demand (direct quantity effect), which in turn affects the price suppliers can charge (price effect) and their production costs (cost effect).

We then analyze whether suppliers are entitled to claim these losses as damages in the two leading competition law regimes, the US and the EU. We find that, while the majority view in the US denies standing, the emerging position in the EU and important member states is to grant supplier standing. We argue that the case law in Courage v. Crehan implies that the type of loss which the competition provisions are intended to prevent is broader in the EU than in the US. In particular, pursuant to EU law, a right to damages does not require that the loss suffered occurred in the same market than the lessening of competition that makes the defendant’s conduct illegal. As a consequence, both Germany and England have abandoned important traditional limitations on standing. We argue that the more generous approach to standing in the EU compared to the US can be justified in view of the different institutional context and the goals assigned to the right to damages in the EU.

According to our analysis cartel suppliers in principle have a right to damages in the EU, as no general restrictions on standing ought to apply; however, the causation requirement will be an important hurdle to clear in a particular case. Sound econometric estimation techniques are of major importance to overcome that obstacle. In this respect, we finally present an econometric approach based on residual demand estimation that allows to quantify all determinants of cartel suppliers’ damages.

Our results therefore suggest that supplier damage claims are a viable option that can contribute to full compensation and greater cartel deterrence in the EU irrespective of further controversial collective action mechanisms.

Bueren, Eckart and Florian Smuda (2013), A Primer on Damages of Cartel Suppliers – Determinants, Standing US vs. EU and Econometric Estimation, ZEW Discussion Paper No. 13-063, Mannheim.