§3.2 Examples

(60) The hypothetical examples below intend to illustrate the relevance of the insights from economic theory explained in this section and in Annex 1. (61) Example 1 describes firm-specific overcharges in a market with strong competition. Example 1 Situation: There are 10 producers of apple juice in the same relevant market. One of the producers sources apples from a supplier involved in a price fixing cartel. This apple juice producer claims damages as compensation for an overcharge. However, the defendant (the supplier of apples) raises the passing-on defence and argues that the apple juice producer has passed on the entire overcharge to the indirect purchasers. Analysis: The apple juice producer facing the overcharge is in strong competition with nine other companies for the production and supply of apple juice. All products sold by the ten companies are rather homogeneous to consumers. In so far as the other producers do not obtain apples from the cartel members, but are able to buy them at a lower price elsewhere, the producer having to buy from the cartel is placed at a competitive disadvantage vis-à-vis its competitors. The apple juice producer's ability to pass on the cost increase would hence be constrained due to the fact that it would lose sale (and profit) to its competitors to a very large extent if it passed on the overcharge, even only partially. The stronger the competition between the 10 apple juice producers, the greater the constraint on the ability to pass on the cost increase. Hence, in this scenario, the direct customer will normally not be able to pass on the increase in cost (the overcharge). (62) Example 2 sets out a situation of industry-wide overcharges and the intensity of competition. Example 2 Situation: All of the 10 producers of apple juice in Example 1 source apples from suppliers involved in a price fixing cartel. The members of the cartel claim that any overcharge is passed on to the indirect purchasers. Analysis: The producers of apple juice are similarly exposed to the overcharge and the market is characterised as competitive. Since all of the producers are faced with the overcharge, one firm will not have a competitive disadvantage compared to the other firms. It is therefore more likely that each apple juice producer to a large extent will pass on the overcharge, in contrast to the case detailed in Example 1 (where the overcharge is firm-specific). As an illustration, in a perfectly competitive market, the price equals marginal costs and a rise in the cost of an input will therefore directly lead to an equal rise in the price. (63) Example 3 describes the issue of the passing-on rate of monopolists facing different demand. Example 3 Situation: Apple juice producer A is a monopolist in the market for the production of apple juice in Member State 1, while apple juice producer B is a monopolist in the same product market in Member State 2. The cost of producing one additional batch of apple juice is constant and similar for A and B. The two apple juice producers sourced apples from C, a supplier involved in a price fixing cartel. As a consequence, both A and B faced an overcharge of EUR 6 per box of apples because they bought apples from C. A and B faced different demands from the grocery retail chains in each Member State. In Member State 1, demand was equally sensitive to a change in prices for all price levels (the demand was linear, see Box 15). In Member State 2, this was not the case. There, demand dropped ‘less and less’ (at a decreasing rate) when price increased (the demand was convex, see also Box 15). A and B claim compensation from C (the member of the cartel) for the harm resulting from the overcharge. C raises the passing-on defence, claiming that A and B have passed on half of the overcharge. Analysis: The monopolists in Member State 1 and Member State 2 faced different demand from the retail grocery chains in each Member State. Their costs when producing one additional batch of apple juice were constant. The overcharge of EUR 6 per box of apples was considered as an increase in the marginal costs for each of them. Following such a cost increase, the scope to adjust the prices upwards would have depended on how much output each would have had to sacrifice to pass on a certain amount of the cost change, i.e. to have increased prices. This is because, if the volume lost when increasing prices is relatively low, the price increase will be more attractive compared to the situation where the loss of volume is high. The loss of volume when increasing prices is related to the curvature of the demand that a monopolist faces, i.e. whether the demand is linear, convex or concave. This is also further explained in Box 15 below. Regarding the monopolist A in Member State 1, on the basis of economic theory it may be possible to argue that the monopolist has passed on half of the overcharge, i.e. EUR 3. However, as the monopolist B faced a convex demand, the remaining demand would have become less price sensitive as the price went up. Compared to A, who faces a linear demand, B would have lost less volume when increasing prices by EUR 3. This implies that B has had an incentive to pass on more than EUR 3. (64) Example 4 describes the issue of price adjustment costs and variable vs. fixed costs in the short and long run. Example 4 Situation: Firms A and B are the only firms owning and leasing out tower cranes in Member State 1. From 2005 to 2015 firms A and B participated in a cartel, agreeing to increase the leasing-price of tower cranes by 80 percent. Firm C is a construction firm operating in cities throughout Member State 1. The company designs, constructs and sells residential apartments in skyscrapers to final customers. The prices of the apartments are advertised in a range of different media and locations, including on the internet, in newspapers and on street-posters. The national competition authority in Member State 1 has found the agreement on prices in the construction sector to be a violation of competition law, and their decision imposing fines on the cartel members was not appealed by firm A or B. Firm C is a direct customer of the cartel. It claims damages from the cartel members A and B. However, firms A and B have raised the passing-on defence, claiming that firm C has passed on the entire overcharge to the indirect purchasers, i.e. the final customers buying apartments in skyscrapers. Analysis: Leasing of tower cranes is one of many input costs that firm C faces when designing and constructing skyscrapers. Examples of other input costs are raw materials such as steel and concrete, labour and financial costs. Hence, it is likely that the leasing of tower cranes only constitutes a small portion of the total costs. Since the prices of the apartments are advertised broadly, firm C may incur significant price adjustment costs. However, since the cartel had a duration of 10 years, the price adjustment costs may be negligible compared to the overcharge after a certain period, eventually giving firm C the incentive to take into account the overcharge when setting prices on apartments. Hence, it may be the case that, due to the price adjustment costs, firm C may not have the incentive to pass on the overcharge in the short run. However, the incentive to pass on the overcharge may change during the infringement period. In order to assess the actual passing-on during the relevant period, the court should therefore estimate the passing-on effect based on the evidence available, for instance by using one of the methods set out in section 4.

← 3.1 · All articles · 4 →

Source: EUR-Lex (Cellar) · retrieved 2026-09-07