This is the second part of a series on damages in price-fixing cases in the United States, Canada, and the European Union. Part I, a comparison of damage theories across these regions, was published on January 31, 2017.
The Economic Building Blocks of a Damage Award
When calculating private damage awards in price-fixing litigation, economic theory can make a real-world difference. In their simplest form, awards are based on the difference between the price actually paid under the collusion and the price that would have been paid absent the collusion. The more units that are sold with an embedded overcharge, the higher the overcharge damages, all else being equal.
In reaction to the increase in their costs, purchasers may decide to raise their own prices to the next step in the distribution chain by an amount equal to or greater than the overcharge (full pass-on), by a portion of the overcharge (partial pass-on), or not at all (no pass-on). If they pass on some or all of the increase, then their own customers pay higher prices as a result of the collusive actions. These customers (or these customers’ own downstream customers) may become indirect purchaser plaintiffs in jurisdictions where indirect purchasers are allowed to claim damages (such as in Canada, in the European Union, or in U.S. state courts, but not in U.S. federal courts).
However, if overcharges increase consumer prices, they may also reduce sales, resulting in lost profits on those lost sales for companies that were victims of the overcharge. This is where calculating damages becomes more complicated and requires some further economic analysis, including the calculation of elasticities.