Cartel Damages | FTI Consulting

Cartel Damages

Why Claims Should Be Linked to Cartelist Profitability

Economic Consulting

July 15, 2020

Money

The European Damages Directive (2014/104/EU) introduced the presumption that cartels result in damages for buyers of cartelized goods or services, particularly in the form of overcharges. This is consistent with the logic that cartelists seek to benefit from higher profitability through the cartel.

Statistics compiled by academics, in reports for the European Commission, and by the OECD indicates that cartel overcharges typically have fallen in the range between 15 to 20%.

We have assessed the profitability of 965 companies in the S&P Global index across nine industries globally. These companies reported weighted average profit margins of 12% and margins around 20 to 25% are generally industry-leading. As profits are a subset of revenues, a given percentage overcharge should result in a higher percentage profit increase, all else equal. This indicates that even a just 10% overcharge would result in a conspicuous increase in profits for most businesses.

Overcharges may not all turn into higher profits as e.g. lower volumes or failure to improve efficiency may absorb part of the overcharges. However, such countervailing effects would also need to be conspicuous to support a claim of high percentage overcharges without a significant boost to profitability.

In summary, even a single digit percentage overcharge would, for many firms, imply a dramatic increase in profitability. Overcharges should therefore be clearly reflected in cartelists’ profitability. This makes the profitability of the cartelists’ relevant business segments a critical cross-check for a well-substantiated overcharge claim.


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