Passing-on

There are three distinct elements that make up the recoverable harm potentially suffered by a claimant. First, there is the increase in the claimant’s costs (“the overcharge”) that may be brought about by the infringement: in legal terms, actual harm or direct loss (damnum emergens). Such harm may arise directly or because of “upstream” pass-on by a direct or indirect purchaser that supplies the claimant. Second, the adverse impact of the overcharge on the claimant may be reduced if it passes on some or all of that overcharge to its own customers, by means of a price increase. This is the “passing-on” effect. Whilst such “downstream” passon reduces the actual harm suffered by the claimant in question, it will do so at the expense of causing harm further downstream. Indeed, the pass-on effect at one level of the supply chain implies an overcharge of the same magnitude at the next level downstream; they are two sides of the same coin. In litigation, pass-on can, therefore, serve as a “sword”, where an indirect purchaser alleges that an overcharge has caused it harm because of upstream pass-on. It can also be used as a “shield”, where a defendant alleges that downstream pass-on by a claimant has reduced the actual harm the latter has suffered. Third, to the extent that a claimant suffers a loss of sales volumes as a consequence of pass-on, it will lose the profit margins associated with those sales. This so-called “volume effect” constitutes recoverable loss of profit (lucrum cessans) in legal terms and forms part of the overall damage calculation. Whenever a firm increases its prices, it will almost invariably suffer such a loss of sales volumes. It is the extent of this prospective loss, which hinges on the sensitivity (or elasticity) of a firm’s demand to price increases, that tempers the extent of passing-on in the first place (Study on the Passing-on of Overcharges, Final Report, RBB Economics and Cuatrecasas, Goncalves Pereira, 2016).

On this topic see the e-Competitions special issue "Economic assessment of damages actions in competition law: An overview of EU and national case law"