This article – which can be found here – looks at the loss that suppliers to a downstream sellers’ cartel can suffer as a result of that cartel, and asks whether they are / should be entitled to claim damages for this loss.
The paper is structured as follows:
It first identifies three economic effects that determine whether suppliers will suffer losses due to a cartel in which their customers participated: quantity, price and cost effects.
The quantity effect is a consequence of cartelised prices, which reduce sales and, hence, the amount of supplies needed to produce the cartelised good or service. The price effect is equivalent to the lower price of input products that will result from the reduced demand by cartelists caused by the quantity effect, multiplied by the number of input units sold. And the cost effects reflect the difference in costs of producing a lower number of supply units (e.g. as a result of loss of economies of scale), multiplied by the number of units sold.
The authors then look into whether suppliers are entitled to claim damages in the U.S. and in the EU.
This requires the authors to first delineate the boundaries of standing to claim damages in both systems. Famously, standing in the US is restricted to certain categories of victims based on a multi-factor analysis – e.g. indirect purchasers do not have standing in antitrust damages claims. Reviewing the literature, the authors find that the majority view in the U.S. denies standing to suppliers. In the EU, while standing is prima facie a matter broadly left to the Member States, the authors conclude that EU rules may require Member States to allow claimants to have standing except if it seems that their loss lacks a sufficient causal link to the anticompetitive conduct. In the light of this, and after reviewing the rules on standing in England and Germany, the authors conclude that ‘the emerging, but superficially reasoned view’ is that suppliers to a cartel may be entitled to claim damages.
The paper’s next section takes a comparative law and economics perspective, and argues that the existence of more generous rules on standing in the EU when compared to the U.S. is explained by different institutional contexts and the different goals of damages claims in each system.
The US prioritises punitive over compensatory goals as regards private enforcement – which is expressed in the treble-damages provision in US antitrust law, together with the existence of opt-out class-actions, pre-trial discovery and contingency fees, which make claims for damages very attractive for purported victims, and imply a high risk of duplicative recovery and complex apportionment exercises. It is therefore essential to tightly limit the universe of potential plaintiffs in the U.S..
In Europe, damages are compensatory, loser-pays rules predominate, and collective opt-out actions are both widespread and generally frowned upon: ‘In such an institutional framework, only those who suffered significant and provable losses have an incentive to sue for damages. Therefore, in the EU, compared to the U.S., more individuals that might suffer losses from a cartel can confidently be granted a right to damages.’ In the light of this, the authors conclude that there are various reasons that support allowing cartel suppliers to sue for damages in Europe.
Finally, the paper seeks to address a number of objections to granting standing to suppliers in damages claims in Europe. They emphasise particularly that they are able to demonstrate how supplier damages can be estimated econometrically; this is done to refute the objection that supplier claims would not be practically viable.
This is an interesting paper on the limits of the right to compensation for competition law infringements. I’m not particularly impressed by the paper’s argument that granting standing to suppliers does not risk duplicative recovery as regards loss suffered by customers priced out the market (‘This effect will usually not translate into customer damage claims, because those customers priced out of the market (potential customers) are often not able to show and prove damages: End-consumers who did not buy (or bought less) do not even suffer damages in the legal sense, as the law acknowledges only monetary losses or lost profits, not mere losses of utility’). While I can see how this risk may be limited in practice, I also think that: (i) lost utility may well be a valid head of damages; (ii) the loss suffered by these consumers and suppliers are different and do not overlap (the consumers loss would relate to their lost utility minus price they would have paid in a competitive market; the suppliers’ loss corresponds to the profits these companies missed on by not being able to sell additional supplies for the productions of the goods / services these customers would have purchased). In other words, I think the authors address a non-existent issue here.
Otherwise, this piece provides a good overview of the rules on standing in a number of the main jurisdictions for private damages claims, together with an insightful discussion of the considerations underpinning choices about who to grant standing to sue for damages.