§8.2 Input costs and their effect on pricing decisions

(158) As explained in paragraph 46 above, the initial overcharge results in an input cost increase for purchasers of the overcharged products or services. Whether these purchasers are able and willing to pass on the overcharge to their own customers — and, if so, to what extent — depends, among other factors, on the cost structure of the purchasers. (159) To identify passing-on effects, it is important to determine whether the input cost incurred by a purchaser facing an overcharge varies with the input quantity it orders (i.e. variable input cost) or not (i.e. fixed input cost). Indeed, economic theory indicates that the relevant cost category for short run price formation is variable costs or more precisely, marginal cost, i.e. the cost increment incurred when purchasing one additional input (see Box 13 below). The opposite of such costs are fixed costs which, in turn, typically affect the long run strategic decisions of firms, such as market participation, product introduction and level of investment. Box 13 Examples of marginal and fixed costs In order to explain the concepts of marginal (variable) and fixed costs it is useful to consider the example in Box 1 above. There, the variable costs of the wire harnesses supplier would be the costs associated with producing one additional wire harness. Such costs may include inputs needed to produce the additional wire harness, including copper and plastic, electricity and labour-costs associated with the additional production. However, the wire harnesses supplier also incurs fixed costs in its production, such as marketing of its products and investment in new machinery. These costs are not affected by the production of one additional wire harness, and are hence considered to be fixed. (160) Typically, the relevant starting point for the assessment of passing-on effects would be the impact of the overcharge on the purchaser's marginal or variable costs. (161) Contracts between firms at different levels of the supply chain, which set out the conditions at which firms would supply their products or services to purchasers, may concern components considered either as variable or fixed costs. For instance, often some components of the price paid by a purchaser are not dependent on the volume purchased, whereas some other components are. It follows that in a damages action involving any passing-on argument it is important to determine whether the price components affected by the infringement are fixed costs or not from the point of view of the purchaser. (162) The time frame over which pricing is considered will affect whether costs are categorised as variable or fixed. Generally, economic theory suggests that the longer the relevant time frame, the greater the proportion of total costs that should be considered as variable. In other words, a certain cost category which is viewed as fixed in the short run might be regarded as variable by the firm when considering a longer time frame. When assessing the relevant time frame in a specific case, the court may wish to consider information from the party's internal documents, e.g. information on the costs that the firms take into account in their own pricing decisions. (163) The considerations of fixed and variable costs are of particular importance when the volume effect is estimated, as the estimation of this effect requires an assessment of the margin of the firms involved in the case at hand.

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