Combining Cartel Penalties and Private Damage Actions: The Impact on Cartel Prices

Abstract In many countries antitrust enforcement by Competition Authorities through prosecution and the imposition of penalties is complemented in price-fixing cases by private damage actions, which should affect both cartel deterrence and the prices set by those cartels that do form. We show that the impact of combining penalties and damages on cartel prices is not clearcut, and depends on both the nature of the penalty regime and the way that damages are calculated. We demonstrate this by focusing on two ways of calculating damages that have been advocated in practice and two different forms of the widely used revenue-based penalty regime. When the simple form of revenue-based penalties is in force, the standard method of calculating damages worsens its harmful pricing effects, whereas the proposed alternative method of calculating damages can overturn them. When a more sophisticated form of revenue-based penalties is in operation, imposing damages will improve its beneficial pricing effects under both methods of damage calculation, but the alternative method is more effective. In all cases combining penalties and damages improves deterrence.