Damages Regimes on Both Sides of the Atlantic

• Date: 01 June 2017
• Published date: 01 June 2017
• DOI: 10.1177/0003603X17708361
• Author: Frank Maier-Rigaud

Article
The Antitrust Bulletin
2017, Vol. 62(2) 334-347
Damages Regimes on Both
ª The Author(s) 2017
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DOI: 10.1177/0003603X17708361
An Economic Critique
journals.sagepub.com/home/abx
Frank Maier-Rigaud*
Abstract
The principles underlying the quantification of damage are universal. Differences between jur-
isdictions therefore do not originate in economics. In a cartel, the damage of direct purchasers
arises from the portion of the price increase that is not passed on to indirect purchasers
together with the lost margin of those sales that are no longer made due to the price increase.
Actual harm suffered has economically been properly captured when both amounts are allowed
to accrue compounded interest until compensation. This article discusses the variable per-
meation of these economic insights in EU and U.S. law. In fact, the reasons for the limited
influence of economics appear to stem from coincidences and path dependencies. Notably the
normative effects of the specific circumstances of the first U.S. damages case going back to a bid
rigging case in the nineteenth century and the prevalence of U.S. literature when the EU devised
its framework.
Keywords
overcharge, compensation, deterrence, damage, quantification of damage, illegal gain
1. Introduction
In addition to the long history of damages claims in the U.S., there is an increasing worldwide interest
in damage quantification as a result of a large number of recent (mostly) cartel cases that triggered
follow-on damages claims in the EU. These developments in the EU are largely due to the successful
policy initiative that the European Commission started in 2004 in its effort to strengthen the possibi-
lities for victims of antitrust violations to claim compensation and has further been amplified by
discussions of different forms of collective redress in the EU. High-profile cartel cases, such as the
*Department of Economics and Quantitative Methods, IESEG School of Management, Paris; Universite´ Catholique de Lille, and
Lille Economics & Management (LEM), Centre National de la Recherche Scientifique, Lille, France; and NERA Economic
Consulting, Brussels, Belgium
Corresponding Author:
Frank Maier-Rigaud, Department of Economics and Quantitative Methods, IESEG School of Management, Paris and Universite´
Catholique de Lille, and Lille Economics & Management (LEM), Centre National de la Recherche Scientifique (UMR CNRS 8179),
Lille, France, and NERA Economic Consulting, Brussels, Belgium.
Email: frank.maier-rigaud@nera.com

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Maier-Rigaud
335
recent trucks cartel1 that triggered some of the highest fines to date and are likely to see record damages
awards over the course of the next years, render this topic of high interest also to firms more generally,
irrespective of whether they find themselves on the defendant or claimant side or where they are located.2
In the U.S., damages claims have a much longer history, but also there, these relatively recent EU
developments have led to an increase in interest in all aspects of damages actions including quantification.
In the following, an economics focused comparison of the EU and the U.S. regime is attempted.
Starting from the premise that damage quantification is an economic rather than legal matter, it appears
appropriate to trace developments in the U.S. and the EU from an economic perspective. Taking into
account different orientations3 and the variable reception of economic thinking, it is possible to trace
some of the fundamental differences between the two jurisdictions.
Overall, there exists a large and growing literature on the technical economic aspects of damage
quantification ranging from theoretical work to discussions of econometric approaches, and there also
exists a large legal literature discussing the respective regimes, including particularities of individual
states in the U.S. and EU member states in the EU.4 The goal of this article is not a literature overview;
nor is its purpose tracing the historical genesis of the different legal frameworks in any detail. This
article simply attempts to shed some light on the limited and asymmetric absorption of economic
thinking on damage quantification.5 Suggesting a limited impact of economic thinking in damages
claims is controversial. Irrespective of whether one believes the glass to be half full or half empty, a
critical review can provide some insight and explanation for why certain legal or policy choices were
made along the way. As a result, the arguments advanced are necessarily tentative but given that they
touch both on fundamental policy and legal questions, they may allow some progress at least in those
jurisdictions that remain sufficiently flexible to allow for changes in the legal framework.
In Section 2 a brief theoretical, but nontechnical, description of the fundamental economic relation-
ships that are relevant for the assessment and quantification of damage is provided. It proceeds by
explaining first the fundamentals of how economic harm is normally brought upon an economic actor,
namely, through a price and quantity effect. Once the fundamental nature of damage is understood, the
section sets out the additional and important problem of the time value of money implying the need to
make adjustments to quantified harm if the moment the harm is compensated occurs later in time than
the moment it was suffered. As this is discussed in a rather simple framework, the next step is to
expand this framework to give some insight regarding the ubiquity of economic effects that may be
triggered by a competition law infringement.
Section 3 sketches some of the discrepancies between underlying economics and the EU and U.S.
legal regime. First, the legal notion of damage is contrasted with the economic concept and then the
question of standing, which is closely linked to causality, is discussed.
Section 4 concludes.
1. See Commission Decision of 19.07.2016 in Trucks [2016] (Case AT.39824) imposing total fines of €2.93 billion after
leniency reductions and reductions under the settlement notice on the five truck manufacturers MAN, Volvo/Renault,
Daimler, Iveco and DAF for participating in a cartel.
2. Large companies, in particular multiproduct firms and those with important procurement portfolios will see themselves
increasingly on both, claimant and defendant side.
3. Given how U.S. law evolved it would be inappropriate to speak of policy objectives in the U.S.
4. See for example IOANNIS LIANOS ET AL., DAMAGES CLAIMS FOR THE INFRINGEMENT OF COMPETITION LAW (2015) or DAVID ASHTON
& DAVID HENRY, COMPETITION DAMAGES IN THE EU (2013) for legal overviews; and PETER DAVIS & ELIANA GARCE´S,
QUANTITATIVE TECHNIQUES FOR COMPETITION AND ANTITRUST ANALYSIS (2010), Frank Maier-Rigaud & Ulrich Schwalbe,
Quantification of Antitrust Damages, in COMPETITION DAMAGES IN THE EU: LAW AND PRACTICE 210–62 (David Ashton &
David Henry eds., 2013) or Id.
5. There is a separate argument to be made regarding the slow adoption of econometric methods in the quantification exercise in
the context of damages cases that continue to be based mainly on very simple and sometimes even outdated methods in the
EU and in the U.S.

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The Antitrust Bulletin 62(2)
2. Some Basic Economics of Damage Quantification
In the context of competition law violations, damage is the (negative) difference between the economic
situation of an individual or firm in the absence of a specific competition law violation (counterfactual)
and the economic situation the individual or firm is in as a result of a specific competition law
violation. For firms, this means that damage is equated with lost profit.
In Section 2.1, the direct effect of a (cartel induced) price increase on a direct purchaser is
considered in order to give some intuition on the distinct price and quantity effects that ultimately
constitute the harm suffered as a result of this price increase.
Subsequently, the question of interest is briefly described in Section 2.2. Once the damage that was
suffered at a certain point in time or over a particular time period has been quantified, it has to be
properly adjusted for the time value of money.
Finally, Section 2.3 moves away from the perspective of a direct purchaser and discusses the harm
that may be suffered by individuals and firms within the vertical value chain, for example, input
suppliers upstream of the cartel and outside the vertical chain such as producers of complements.
2.1. Price and Quantity Effects and the Time Value of Money6
In the most simplistic scenario, damage accrues because cartelists7 are selling products at a cartel
mark-up to other firms and final consumers.8 In this case, the cartelization of the market leads to two
distinct effects: a transfer of wealth (price effect) and inefficiencies (quantity effect), both of which
together make up the damage. Due to the higher price induced by the cartel there is a transfer of
economic rent from purchasers to cartelists. This is the overcharge (damnum emergens), that is, the
amount that purchasers overpay for the quantity they continue to buy. Concerning the allocation of
resources, the cartel leads to a welfare loss due to nonexhausted gains from trade in form of lost utility
for final consumers or, in case the purchases are made by firms, lost margin. This is called loss of profit
(lucrum cessans) or quantity effect and represents an economic or allocative inefficiency also known
as dead weight loss.
In simple...