Overcharge

Overcharge is an economic term used in legal discourse about price fixing violations. An overcharge is the difference between what a buyer or seller actually paid for a good purchased from a cartel and what the buyer or seller would have paid in the absence of a price-fixing cartel. The total amount of the overcharges paid by customers of a cartel is the major component of damages that can be recovered by plaintiffs in private antitrust suits. Under U.S. federal antitrust law, buyers injured by cartel overcharges are entitled to triple the overcharges that they are able to prove in court.

The overcharge has a one-to-one relationship to the Lerner Index, the most common measure of market power in economics. Both measures employ the same numerator (PM - PC), where PM is the observed market price and PC is the competitive benchmark price, but use different denominators. The overcharge ratio is (PM-PC)/PC, whereas the Lerner Index is (PM-PC)/PM. Both ratios are zero when a market is perfectly competitive or a cartel is ineffective in raising prices. The Lerner Index has an upper limit of one when the pure monopoly price is charged in a market. The overcharge has no upper limit.

Category:Business