Price Dispersion and Class Certification in Antitrust Cases: An Economic Analysis

Journal of Legal Economics, Sep 2007 by Nieberding, James F, Cantor, Robin A

Abstract

Differences in prices paid by putative class members (i.e., price dispersion) often become a focal point for class certification in antitrust matters. This paper discusses how an economic analysis of the existence, extent, and nature of price dispersion faced by plaintiffs seeking class certification may be informative even in matters thought to be particularly appropriate for class treatment (e.g., horizontal price-fixing). The existence of price variability among the products at issue can be addressed within the class framework if such price differences are systematic and able to be controlled for in any but-far pricing analysis.

Introduction

A class action lawsuit provides a means whereby large numbers of plaintiffs may have their complaint involving common questions of fact adjudicated in a consolidated proceeding. However, before a class can be certified, certain legal conditions must be met.1 Additionally, in antitrust cases, economic evidence often is at the heart of whether or not these conditions are satisfied. The authors' focus in this paper is to explore the economic evidence criteria, in particular pricing variability, and its relevance in helping to inform the class certification decision in an antitrust context.

Generally, the central issue for an economist at the class certification stage is whether or not there is a common formula, model, or other methodology that plaintiffs could use to establish that each class member suffered impact and damages from the alleged anti-competitive act. Indeed, the class certification decision frequently depends on the quality of the expert analyses. As noted by Cook and Rugg (2006),

[A]ntitrust class certification decisions usually turn on which side has presented evidence that directly supports its class certification arguments rather than merely citing legal principles and case authority. ... Often the determination of whether [the plaintiffs expert] can truly deliver on a methodology to demonstrate antitrust impact through class-wide proof is the determining factor in a court's predominance decision.

While price variability is but one economic factor relevant to the class certification decision, differences in prices paid by putative class members (i.e., price dispersion) often becomes a focal point for the economic analysis of class issues in antitrust matters. Typically, such price dispersion cases involve horizontal issues (e.g., price-fixing, bid-rigging) where class members argue that but-for the alleged anti-competitive conduct, plaintiffs would have paid lower prices. Such cases frequently are viewed by the courts as being particularly appropriate for class treatment because they presumably impact all direct purchasers in the affected market.4

As discussed in Nieberding and Cantor (2004), plaintiffs in these cases often base their arguments on case law stemming from Bogosian v. Gulf oil Corp. (1977).5 This case established the so-called "Bogosian shortcut" which favors a presumption of common impact on class members whenever economic reasoning provides a sensible link between the alleged unlawful conduct and common injury to individual class members. However, even in these matters, economic analysis is still required to ascertain whether average class-wide impact is a reasonable representation of that suffered by all members of the proposed class, or whether an individualized, plaintiff-specific assessment of impact and damages is more appropriate.6 Such a sentiment was endorsed by the U.S. Court of Appeals for the Third Circuit in In re Linerboard Antitrust Litigation, where the role of economic reasoning and sound economic analysis to support the appropriateness of class certification was highlighted.

In Linerboard, a matter in which the authors were involved,3 a key issue was whether an alleged conspiracy among linerboard producers would likely have had a common impact on direct purchasers who used this product to make corrugated sheet and boxes. Another issue was whether average prices in this industry were meaningful for pricing analysis as opposed to being too idiosyncratic and, hence, inappropriate for class treatment. The Third Circuit noted that the plaintiffs' experts reliably demonstrated that certain product characteristics and economic conditions were present which led to a systematic pricing structure, providing them a basis for concluding that there existed a reliable formulaic approach to estimate damages for class members.

A strong argument can be made that the Bogosian concept of presumed impact was properly applied here. ... In addition to relying on the Bogosian short cut, it [the district court] credited the testimony of plaintiffs' experts, opinions that were supported by charts, studies and articles from leading trade publications. These experts suggested that advanced econometric models could be effectively prepared to establish class-wide impact.9

The class action trade press, in commenting on the Supreme Court's refusal to review the Third Circuit's decision in Linerboard, noted