The Best of Both Worlds: Compensation via Price-Caps for Passed-On Overcharges

Abstract

We present a market-based compensation approach to antitrust litigation and other cases of price overcharges. Instead of lump-sum compensation, paid either directly or through coupons, defendants are required to lower their prices for a certain designated period, i.e. price-cap compensation (PCC). We show why previous criticism of PCC was misguided. And, in sharp contrast to the common view in the literature, implementing PCC may have many substantive and procedural advantages. Importantly, although PCC is implemented vis-à-vis direct purchasers only, it reconciles the U.S. and European Union legal approaches and solves the challenge of passed-on damages to indirect purchasers.