Understanding Economic Issues in Indirect Purchaser Antitrust Class Actions
The relevant economic issues in antitrust class action cases that involve indirect purchasers— class members who did not purchase the product at issue directly from one of the defendants, but instead from another seller further down the supply chain—are often complex and idiosyncratic to each specific industry. The question of impact for indirect purchasers involves two distinct steps:
- First, did the direct purchasers pay too much for the product at issue (also referred to as an “overcharge”)?
- Second, did this allegedly inflated price to direct purchasers “pass-through” to indirect purchasers?
To answer these questions requires different types of analyses. Here, we will focus specifically on the second question related to “pass-through.” To study pass-through in an indirect purchaser case, one must first understand the supply chain—the series of transactions from when the product was first sold by a defendant to the ultimate purchase made by the proposed class member. Supply chains can be relatively straightforward or highly complex. Take a hypothetical example of a simple widget: manufacturers sell widgets directly to retailers, who then resell the widgets to individual consumers. In this example, the supply chain involves only a single step and does not involve any changes to the relevant product. But in other industries, the supply chains can be significantly more complex.
Take, for example, In re: Class 8 Transmission Indirect Purchaser Antitrust Litigation, where indirect purchaser plaintiffs (“IPPs”) alleged a conspiracy to monopolize the market for heavy-duty transmissions. The IPPs purchased heavy-duty trucks made by large truck manufacturers in the United States. However, the alleged conduct involved a single part included in the truck made by another company that supplied the transmissions to the truck manufacturers. Plaintiffs alleged that they paid higher prices for heavy-duty transmissions and, in turn, heavy-duty trucks. That is, the question for an assessment of pass-through, in this case, was whether the alleged overcharge on transmissions led to increased prices on heavy-duty trucks (of which the cost of the transmission was a small percent of the total price) at each level of the supply chain.
In this case, there were multiple supply chains, which varied for different proposed class members. For example, certain proposed class members purchased non-customized heavy-duty trucks from dealerships that purchased these trucks directly from manufacturers. Other proposed class members purchased heavy-duty trucks from bodybuilders, which modified these trucks to the purchasers’ specifications, adding components such as cement mixers, tankers, or refuse loaders for garbage trucks.[i]
Once you have identified the relevant supply chains at issue, the next step is to assess if the alleged overcharge in fact passed through each level of these chains and ultimately was paid by the proposed class members. For this analysis, the relevant information includes the cost of the product at issue to each intermediary and the price that the intermediary ultimately charged its customer. Using this information, the question is then, do increases in prices upstream due to the alleged conduct impact the prices paid by indirect purchasers, and is this common across the proposed class members?
Part of this inquiry is understanding how prices are set at each level of the supply chain. For example, are prices set using specific price points, like those ending in $0.99 or $9? Do resellers adjust these prices in the face of any cost increase—i.e., would a retailer adjust the price of a widget originally priced at $99 in the face of a slight cost increase? (If not, an overcharge may not pass through this specific intermediary.)
Alternatively, is it the case that indirect purchasers receive rebates or other types of discounts that can impact the final price each individual purchaser paid? Returning to the Class 8 Transmissions matter, certain indirect purchasers received discounts on their new heavy-duty trucks after trading in their existing trucks. Other indirect purchasers received more favorable financing for their heavy-duty trucks (which can cost tens of thousands of dollars).[ii] In either case, the final price the indirect purchaser paid would depend on these individually negotiated prices.
The answer to the question of pass-through is ultimately an empirical one. Data on the costs and prices for this inquiry may not be tracked by the defendants or plaintiffs, but instead by a third party (e.g., retailers or distributors that purchased the product at issue). As there can be numerous intermediaries at issue, an empirical analysis of pass-through may rely on data from a subset of these third parties.
This raises yet another issue, as subsets of data may not be representative of all relevant entities in the supply chain. For example, in the Class 8 Transmissions matter, the District Court pointed to the fact that IPPs only analyzed data for less than one percent of the sales of heavy-duty trucks, stating that in “no way does an analysis of one percent compel the conclusion that plaintiffs can proffer sufficient common evidence to prove the alleged overcharges were passed through to indirect purchasers.”[iii]
Courts have acknowledged the additional complexity of the economic issues that arise in indirect purchaser class actions, as the In re: Class 8 Transmissions case shows.[iv] An analysis of pass-through often involves multiple different supply chains, each of which can have different economic conditions, which may impact how (if at all) an alleged overcharge could impact prices paid by indirect purchasers.
[i] In Re: Class 8 Transmission Indirect Purchaser Antitrust Litigation, 140 F. Supp. 3d 339 (D. Del. 2015).
[ii] The National Automobile Dealers Association estimates that the average price of a Class 8 truck in the United States was approximately $87,000 in September 2022 (see https://www.nada.org/media/6562/download?inline).
[iii] In Re: Class 8 Transmission Indirect Purchaser Antitrust Litigation, 140 F. Supp. 3d 339 (D. Del. 2015).
[iv] The U.S. District Court for the District of Delaware that denied a motion for class certification by indirect purchaser plaintiffs in October 2015. The District Court’s decision was upheld by the U.S. Court of Appeals for the Third Circuit in February 2017 (In Re: Class 8 Transmission Indirect Purchaser Antitrust Litigation, No. 15-3791 (3d Cir. Feb. 9, 2017)).