The Kone Decision

• Published date: 01 September 2016
• DOI: 10.1177/0003603X16657222
• Date: 01 September 2016
• Subject Matter: Articles

Article

The Kone Decision: Economic

Logic and Damage Estimation

Roger D. Blair,* Christine Piette Durrance,

**

and Wenche Wang*

Abstract

Price fixing cartels do not always involve all members of an industry. To the extent that the non-

conspiring industry members set their prices under the price umbrella of the cartel, the customers

of the nonconspiring firms suffer overcharges just like customers of the conspiring firms. Similarly, in

a buyer cartel, sellers to the nonconspiring buyers would suffer underpayments just like sellers to

the conspiring buyers. In the European Union, price fixing is prohibited under Article 101 of the

Treaty for the Functioning of the European Union (TFEU). A recent Court of Justice (CJEU) ruling

has allowed the opportunity for umbrella plaintiffs to have standing and prove damages. In this

article, we review the Kone decision and discuss the economics of umbrella pricing and umbrella

damages. We analyze the issue of partial conspiracy among sellers and among buyers. Additionally,

we discuss the estimation of damages both theoretically and in practice. We also identify some

possible complications that may arise in damage estimation. We find that the CJEU’s economic

reasoning is clearly correct and umbrella plaintiffs should have their chance to prove damages but

will face the similar hurdles as nonumbrella plaintiffs.

Keywords

umbrella pricing, price fixing, conspiracy, partial conspiracy, damage estimation, buyer cartel

I. Introduction

When price fixing cartels are discovered, it is not uncommon to find that some firms did not

participate. The nonparticipants, therefore, would not have violated Article 101 of the Treaty for

the Functioning of the European Union (TFEU), which forbids price fixing. Under predictable

circumstances, the customers of the nonparticipants will have paid higher prices than they would

have paid in the absence of the price fixing cartel. These parties are victims of umbrella pricing

since their suppliers are induced to raise their prices under the umbrella created by the cartel

(i.e., when these overcharged customers file suit for private damages, they are known as umbrella

*Department of Economics, University of Florida, Gainesville, FL, USA

**Department of Public Policy, University of North Carolina, Chapel Hill, NC, USA

Corresponding Author:

Roger D. Blair, Department of Economics, University of Florida, Gainesville, FL 32611, USA.

Email: rdblair@ufl.edu

The Antitrust Bulletin

2016, Vol. 61(3) 393-410

ªThe Author(s) 2016

Reprints and permission:

sagepub.com/journalsPermissions.nav

DOI: 10.1177/0003603X16657222

abx.sagepub.com

plaintiffs).

1

Much the same can be said about buyer cartels

2

that do not include all firms. Those

who sell to the nonconspirators receive lower prices than they would have received in the absence

of the collusion and, therefore, are victimized in the same way that suppliers to the conspirators

are victimized. In a recent decision of the Court of Justice of the European Union (CJEU), Kone

v. O

¨BB-Infrastruktur,

3

umbrella plaintiffs were granted standing to sue the cartel members for

the injuries that they had suffered even though they purchased from nonparticipants. As one

might expect, the CJEU’s decision was carefully qualified, reflecting a concern for the legitimate

victims while warding off specious damage claims.

In this article, we begin with Article 101 of the TFEU (section II) and a brief review of the CJEU’s

Kone decision (section I II). We then explore the economic fou ndation of the CJEU’s ruling and exten di t

to colluding buyers (section IV). We argue that the conduct captured in the economicmodels is the only

economically rational way for the parties to behave, which should reduce any concern that umbrella

claims are conjectural. In sectionV, we turn our attention tothe estimation of the damagessuffered by all

victims of the collusive agreement. Fromthis relatively straightforwardeconometric approach, we argue

that the damages are not inherently speculative. On the contrary, the damages are based on a just and

reasonable inference. These inferences are derived from data that must be provided by various parties,

which could raise important discovery issues. In section VI, we examine three possible complications

includingthe pre-conspiracy market structure, bid rigging,and product differentiation. In section VII,we

consider three additional issues raised by the Kone decision including safe harbors, substitutes, and

discovery issues. Finally, we close with some concluding remarks in section VIII.

II. Horizontal Agreements and EU Competition Policy

In the European Union (EU), the legality of horizontal agreements among firms is governed by Article

101 of the TFEU. As a general proposition, Article 101 forbids anticompetitive agreements among

ostensible competitors. More specifically, Article 101 provides that:

1. The following shall be prohibited as incompatible with the internal market: all agreements

between undertakings, decisions by associations of undertakings and concerted practices which

may affect trade betweenMember States and which have as their object or effectthe prevention,

restriction or distortion of competition within the internal market, and in particular those which:

a. Directly or indirectly fix purchase or selling prices or any other trading conditions.

The plain language of Article 101 would appear to cover price fixing agreements among buyers as

well as agreements among sellers. Both types of collusive activity interfere with the competitive

market process and produce similarly objectionable economic results.

4

Firms that participate in a cartel in violation of Article 101 can be punished by heavy fines that can

reach 10%of the firm’s total worldwide revenue. In addition, since the EU introduced a right to pursue

private damages in 2001, they are vulnerable to private damage actions.

5

As a general principle, the

1. Thisissue was addressed by Roger D. Blair & Virginia G. Maurer, Umbrella Pricing and Antitrust Standing: An Economic

Analysis, 1982 UTAH L. REV. 763 (1982). That analysis was updated by Roger D. Blair & Christine Piette Durrance, Umbrella

Pricing: Antitrust Injury and Standing,in ISSUES IN COMPETITION LAW AND POLICY (W. Dale Collins ed., 2008).

2. For more extensive discussion about buyer cartel, see Roger Blair & Wenche Wang, Buyer Cartels, Private Enforcement of

Antitrust Policy (2016) (unpublished manuscript).

3. Case C-557/12, Kone AG, et al. v. O

¨BB-Infrastruktur AG (ECJ 2014).

4. The adverse economic consequences of both buyer cartels and seller cartels are examined in section IV.

5. See Thomas Knight & Wouter De Weert, Private Damages and European Competition Policy: Bridging the Gap (2015)

(unpublished manuscript).

394 The Antitrust Bulletin 61(3)