Governments (so as to save money) and Chicago School economists (as a point of principle) would generally prefer the enforcement of competition policy to be done by affected companies and individuals rather than taxpayer-funded competition authorities. They therefore encourage those that are damaged by cartels and dominant companies to sue those who have damaged them. Unfortunately the two difficulties of (a) proving the abuse and then (b) quantifying the damage mean that successful actions have been fairly rare.
It would obviously be good if a cartel's over-charged customers could easily and successfully claim compensation from their suppliers, for this would counteract the economic harm that had been done by the cartel. Indeed, many in government hoped that such private actions might over time allow the competition authorities to devote less resource to cartel busting. There was a feeling that larger companies should be left to pursue their cartelised suppliers through the courts, thus cutting the cost to the taxpayer and perhaps also acting as a much greater deterrent to future cartels.
Much the same logic applies to the damage done by those who abuse their dominant position in their market.
Unfortunately, however, it has proved very difficult to get damages claims through the courts for at least two reasons:
- buyers are often small and dispersed; and
- larger, immediate buyers can sometimes pass on the costs to downstream buyers so it is hard to identify who has lost what.
The Government accordingly announced in March 2012 that it would consult on changes that might make it easier for businesses and others to bring 'collective proceedings' (often called class actions and follow on actions). The necessary legislation came into force in October 2015, introducing:
- an extended remit for the Competition Appeal Tribunal (CAT), making it the major and powerful venue for competition actions in the UK, and
- a new power for the CAT to approve 'opt-out' class actions, as a result of which all claimants would eventually benefit (if the action is successful) even if they knew nothing about the legal action.
It remains to be seen whether there will in practice be many collective proceedings as
- the litigation will still need to be funded,
- the lead body (such as a consumer body) will need to pay the defendants' costs if the action is unsuccessful, and
- the two fundamental problems mentioned above may still get in the way - as has indeed happened in the MasterCard case:-
The first significant collective action was launched in September 2016, on behalf of its many millions of card-holders, when MasterCard was sued for £14 billion. (The European Commission had previously found the company guilty of abusing its dominant position by imposing excessive charges on the use of its credit and debit cards.) The claim failed in front of the CAT who found that there was "no plausible way of reaching even a very rough-and-ready approximation of the loss suffered by each individual claimant". This was because MasterCard's excessive charges were seldom passed on directly the customer who used the card. Instead, the cost was to some extent absorbed by the retailer, and to some extent passed on to all customers, in higher prices, whether or not they used the card at all. It was therefore impossible for the court to apportion compensation. But the CAT's decision was overturned in the Court of Appeal so the CAT will now have to look at the case again.
[There was understandable disappointment that the CAT's judgment appeared to reduce the deterrent effect of the relatively new private action legislation. However, the White Paper that foreshadowed the legislation made no reference to its deterrent effect. The aim, it said, was purely to facilitate compensation claims. The answer - for future plaintiffs - might be to band together in smaller groups where the damages can more easily be quantified and apportioned. Indeed, Mastercard have been successfully sued by several major retailers. Another answer, which would need legislation, might be for the CMA to be tasked with calculating and then overseeing the distribution of compensation once they have successfully tackled the original abuse.]