Understanding Regulation

Facts, Analysis and Comment

Claims for Compensation

'Private Actions' and 'Collective Proceedings'

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 rather than taxpayer-funded competition authorities. They therefore encourage companies 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 hope 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). The necessary legislation came into force in October 2015, introducing:

It remains to be seen whether there will in practice be many collective proceedings as the litigation will still need to be funded, and the lead body (such as a consumer body) will need to pay the defendants' costs if the action is unsuccessful. But the first significant action was launched in September 2016 when MasterCard was sued for £14 billion, the European Commission previously having found the company guilty of abusing its dominant position by imposing excessive charges on the use of its credit and debit cards.


Martin Stanley