Passing on of cartel overcharges: Why is it so difficult to formulate robust predictions?

We introduce the reader to three stylized scenarios often referred to by practitioners when asked about the share of a cartel overcharge that was passed on from direct to indirect suppliers. We show how sensitive such predictions are with respect to many of the underlying assumptions. Even slight deviations from standard assumptions may overturn predictions entirely. We conclude that a reliable estimate of the pass-on rate must always be informed by actual evidence –used either to complement theoretical models or as input for evidence-based models.

I. Introduction 1. On 1 July 2019, the European Commission released the final version of its guidelines for national judges on how to estimate the share of cartel overcharges passed on to indirect purchasers and final consumers (the final guidelines) [1]. 2. More than two years have passed since the Commission commissioned a study that was supposed to inform its stance on passing-on. The 300-page study, which outlined the economics of pass-on and relevant case law, concluded in the recommendation for judges to use a checklist designed to assess available evidence regarding pass-on. [2] However, the study’s attempt to condense the complicated mechanisms behind the determinants of the pass-on rate into a slim and user-friendly questionnaire seems not to have convinced the Commission.

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Tobias Binz, Pierre Fleckinger, Christian Jaag, Constance Monnier-Schlumberger, Passing on of cartel overcharges: Why is it so difficult to formulate robust predictions?, November 2019, Concurrences N° 4-2019, Art. N° 92107, pp. 50-58

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