Stand-alone private antitrust damages: (how) should competition authorities react?

The European Commission has recently set up a framework that facilitates the access to the courts by victims of antitrust injury, even in the absence of a ruling by a competition authority (so-called stand-alone private damages, or SPD, actions). Here, I study a game where both public and private antitrust enforcement play a role. Plaintiffs face information acquisition costs (evidence-gathering) if they want to bring an SPD action, but they do not internalise the opportunity cost of the courts’ resources. First, I show that any gain in deterrence has to be traded off against costly litigation and enforcement costs, and that these tradeoffs are heterogeneous across market sizes. Second, taking the competition authority’s actions as exogenous, SPDs can improve welfare only if the competition authority is sufficiently effective: private damages are a complement to (good) public enforcement, not a substitute. Third, a resource-constrained competition authority, upon the introduction of SPDs, should investigate a larger proportion of industries (even at the cost of a higher error rate). That is, whilst a “hands-off” approach might have been warranted absent SPDs, this is no longer true once stand-alone actions are introduced. Copyright Springer Science+Business Media, LLC 2012