§5.2.1 The passing-on rate approach

(120) The section above describes methods and techniques for comparator-based approaches to estimate the passing-on related price effect. In general, the comparator-based approach is preferable when it is feasible and proportionate to implement. This is due to the method's clear advantage of allowing for an estimation of passing-on based on the actual prices set by a direct or indirect purchaser during the infringement period. However, it relies inter alia on the availability of data on these prices, in addition to prices in one or several comparator market(s). Such information may be available in many cases. However, if information on actual prices in the infringement market and the comparator market(s) cannot be presented before the court, for instance if the court finds that disclosure of such information is disproportionate to the value of the claim in the case at hand, passing-on may be estimated on the basis of other methods, such as the passing-on rate approach. (121) This passing-on rate approach can be implemented by analysing how previous changes in a firm's costs have affected its prices before or after the infringement period. For instance, in the example in Box 1 above, the passing-on rate may be estimated by analysing how historical changes in the cost of copper have affected the price of wire harnesses. Put simply, if an increase in the cost of copper by EUR 10 is followed by a price increase of wire harnesses by EUR 5, the passing-on rate is estimated to be 50 percent. To estimate the passing-on during the infringement period, the court could then combine this estimated passing-on rate with information on the overcharge and sales. (122) However, the passing-on rate approach is not without risks and can even deliver misleading results in some cases. This is because when using this approach to estimate passing-on, the court can neither establish if the overcharge is actually passed on nor can it observe whether changes in the cost of the affected input are reflected in prices in the downstream markets. It is therefore crucial for the court to be aware that the passing-on rate approach relies on the assumption that, during the infringement period, changes in input costs are reflected in prices downstream. If this assumption is incorrect, this approach may produce estimates which are misleading in that they find a passing-on of overcharges where none has actually happened. (123) When using the passing-on rate approach, the court would typically endeavour to estimate the passing-on based on how changes in the cost of the affected input have previously been reflected in prices downstream. However, if such information is not available, the court may look at the development of other components of the purchaser's marginal cost and analyse how such cost changes affect downstream prices. In the hypothetical case set out in paragraph 8 and further modified and explained in paragraph 78 and 98 above, this means that a court could consider an analysis of the relationship between the price of wire harnesses and the cost of plastic (not affected by the infringement), and estimate a passing-on rate based on the latter relationship. (124) In most cases the infringement at issue concerns the cost of an input which constitutes just one component of the purchaser's marginal cost. If the input affected by the infringement constitutes only a very small fraction of the marginal cost, even a significant increase in the cost of that input may hardly be detected in the purchaser's price data, even if it is passed on in full. Although an alternative approach may be to estimate the passing-on rate based on changes in costs of more significant inputs and not just the cost of the affected less significant input, such an approach comes at the price of an assumption that may go too far, namely that the marginal cost increases are being passed on at an identical rate irrespective of the source for the cost increase. Moreover, if a comparator-based method, i.e. actual price based estimation, finds no statistically significant passing-on this can be considered as evidence supporting the hypothesis that no passing-on actually happened. In other words, the finding that there was no passing-on on the basis of the comparator-based method is neither a valid nor a sufficient argument, as such, to adopt a passing-on rate method. (125) As explained in Annex 1, there are also good reasons why firms may not always pass on small changes in their marginal costs, at least not in the short run, even if they would pass on larger cost changes. Hence, it may not be legitimate to assume that the passing-on rate will be similar for different changes in the input cost. One explanation may be that the firm may incur so-called price adjustment costs, and thus prefer waiting until marginal cost increases accumulate beyond a certain threshold before changing its prices. (126) When assessing the indirect evidence of passing-on based developments of cost components that are not affected by the overcharge, it is advisable to also take into account qualitative evidence that may show that the passing-on of small cost increases is in the specific case in line with the commercial practice of the direct or indirect purchaser. (127) In certain cases, information on prices set by the direct purchaser during the infringement period, and only for this period, may be available. The passing-on rate approach may deliver misleading results also in such scenarios. This is because it would identify passing-on related price effects on the basis of changes in the costs of the input that has been subject to a competition law infringement. In many cases, it is not unlikely that, during the infringement period, the changes in the costs of the input that has been subject to a competition law infringement are substantially smaller than the cost increase resulting from the infringement. As explained above, small cost increases may not be passed on to the same extent as larger cost increases, and hence looking at relatively small cost and price changes during the infringement period could lead to an imprecise estimate of the passing-on effect.

← 5.2 · All articles · 5.2.2 →

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