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Antitrust Impact in Indirect Purchaser Class Actions: The Need for Rigorous Analysis of Pass-Through

Kostis Hatzitaskos, Bryan Ricchetti, and Daniel Schmierer, ABA Section of Antitrust Law, Distribution and Franchising Committee Newsletter, Spring 2015

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In indirect purchaser class actions, economic analysis of whether the alleged anticompetitive behavior had a common impact is more complicated than in direct purchaser class actions. In both direct and indirect purchaser class actions, a fundamental question that economic experts must investigate is whether common evidence and common methods can be used to measure reliably the damages allegedly imposed on direct purchasers of the product (for example, due to an overcharge). However, in indirect purchaser cases, experts must then also show that common evidence and common methods can be used to measure reliably the extent to which the overcharge paid by direct purchasers is passed through to each member of the proposed indirect purchaser class. Recent court decisions appear to increase the level of rigor required in analyses at the class certification stage. Most notably, two recent high-profile rulings by the U.S. Supreme Court – Wal-Mart Inc. v. Dukes (2010) and Comcast v. Behrend (2013) – have raised the bar for expert analysis at the class certification stage by explicitly emphasizing (1) the importance of “rigorous analysis,” and (2) the need to causally link the theory of harm to the measure of alleged damages suffered by class members.

In this article we discuss the implications of the new “rigorous analysis” standard for the critical question of pass-through of alleged anticompetitive harm in indirect purchaser class actions, with a particular focus on retail pricing. We start in Section II with a short overview of the basic economics of pass-through. In Section III, we then explore three important considerations in retail pricing that can complicate the question of whether an alleged overcharge is passed through to the end consumers (putative class members). Specifically, we examine: (1) discounting pricing strategies like “loss leader,” “everyday low pricing,” and “high-low” pricing; (2) the strategic use of scale and size to negotiate lower prices (i.e., the Wal-Mart effect), as well as the use of private label brands; and (3) “sticky” pricing due to focal point pricing and menu costs.

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