Evolving or Running in Place? Empirical Approaches to “Common Impact” in Antitrust Class Actions
I. INTRODUCTION
1. In class action litigation, a court’s decision as to whether a particular class should be certified turns, in part, on the question of predominance.1 In antitrust class actions in particular, the predominance assessment relies heavily on economic analysis. Plaintiffs’ expert economists offer opinions on whether evidence common to the proposed class can establish antitrust impact—i.e., paying actual prices higher than in a “but-for” world absent the alleged conspiracy—to all (or nearly all) members of that class. Defendants’ expert economists are asked to assess those opinions.
2. Plaintiffs’ expert economists generally rely on three broad categories of economic evidence to assess issues of predominance. The first category involves analysis of what is referred to as “common industry characteristics.” Plaintiffs’ expert may describe certain characteristics of the industry at issue—e.g., a small number of competitors, high barriers to entry, and absence of substitutable products—and opine that economic theory predicts a higher likelihood of classwide impact in industries where such characteristics are present.2 This type of analysis is generally not definitive because it offers no objective criteria to test the proposition of classwide impact. There is no test or bright line rule, for example, dictating how concentrated the industry at issue should be to establish that the alleged conduct harmed the entire proposed class.
3. A second type of economic evidence often offered by plaintiffs’ expert economists as part of the predominance inquiry involves “pooled” regression models that aim to statistically identify overcharges (i.e., price elevations resulting from the alleged conduct). These models are referred to as “pooled” because they combine sales data across all proposed class members and estimate a single average overcharge. The shortcomings of pooled regression models for the predominance inquiry have been extensively discussed in the economic literature.3 Pooled overcharge models are generally referred to as “representative” evidence—i.e., evidence meant to “represent” the experiences of class members through an average, rather than directly assess each individual class member’s experience (which may or may not be different than the average).4
4. Given the limitations of the pooled overcharge model for establishing injury to all (or nearly all) members of a given proposed class, plaintiffs’ expert economists often offer a third type of economic evidence, which is referred to as analysis of “common impact.” This type of analysis—which has been implemented in the form of several different empirical methodologies—seeks to supplement the pooled overcharge models and fill the analytical gap with respect to assessing injury on a classwide basis.5 However, any such “common impact” techniques should be evaluated rigorously, as they often go no further than the pooled regressions they intend to supplement in terms of addressing issues of masking individualized differences and sweeping in uninjured class members.
5. As the economic analysis of antitrust class certification continues to become more complex and data intensive, “courts have continued to scrutinize average pricing models, the propriety of which depends not only on a proposed class’s theory of liability but on the degree to which they account for variation of injury between class members.”6 A variety of economic methodologies have emerged with the supposed intent of assisting courts in this scrutiny. Some—called “price structure” methodologies—seek to supplement the pooled overcharge model and do not, in and of themselves, rely on that type of model. Others—called “but for price” methodologies—seek to extend the results from the pooled overcharge model. But are these techniques advancing the ball in terms of helping courts deliberate on the question of predominance? Or are they simply repackaging the same issues under the guise of supposedly increased rigor and precision? Given the increasingly technical nature of these “common impact” methodologies, this paper aims to arm practitioners and courts with a better understanding of how they work and where they may (or may not) add value.
Read this piece, originally published by Competition Journal of the Antitrust and Unfair Competition Law Section of the California Lawyers Association, on their site or in the attached PDF.
CITATIONS
[1] Fed. R. Civ. P. 23(b)(3) requires that “questions of law or fact common to class members predominate over any questions affecting only individual members….” (emphasis added).
[2] See, e.g., Memorandum L. in Support of Direct Purchaser Plaintiffs’ Motion for Class Certification at 50–51, In Re: Domestic Drywall Antitrust Litig., No. 2:13-md-2437-MMB (Aug. 3, 2016) [hereinafter Drywall Class Certification Motion] (Plaintiffs’ expert “establish[ed] market factors that made it far more likely that the Cartel would be successful in widely imposing conspiratorial prices across the Class…. Such factors include: Market concentration and CoConspirators’ domination of the Drywall market, … Lack of economic substitutes, … High barriers to entry.”); Direct Purchaser Plaintiffs’ Motion for Class Certification, & Memorandum L. In Support at 13, In re Capacitors Antitrust Litig., No. 3:14-cv-03264-JD (June 15, 2017) (Plaintiffs’ expert “described various characteristics of the capacitor industry that would cause economists to deem it susceptible to 01collusion, … including Defendants’ market power in a concentrated industry, … high barriers to entry, … and inelastic and declining demand.”); Memorandum L. In Support Direct Purchaser Plaintiffs’ Motion For Class Certification at 4–5, In Re: Interior Molded Doors Antitrust Litig., No. 3:18-cv-00718-JAG (Mar. 9, 2021) [hereinafter IMD Class Certification Motion] (“Class-wide evidence shows that the IMD market possesses characteristics that facilitate (1) collusion, and (2) widespread harm on all Class members. These include: Dominant market power, […] Significant barriers to entry exist, […] Demand for IMDs is inelastic as there are no reasonable economic substitutes, […] IMDs are commodities….”).
[3] See e.g., Laila Haider et al., Turning Daubert on its Head: Efforts to Banish Hypothesis Testing in Antitrust Class Actions, 30 Antitrust 53 (2016) [hereinafter Haider et al.]; ABA Antitrust L. Section, Econometrics: Legal, Practical, And Technical Issues 357 (Lawrence Wu et al. eds., 2d ed. 2014) [hereinafter ABA Econometrics]; John H. Johnson & Gregory K. Leonard, Economics and the Rigorous Analysis of Class Certification in Antitrust Cases, 3] J. Competition L. & Econ. 341 (2007); John H. Johnson & Gregory K. Leonard, Rigorous Analysis of Class Certification Comes of Age, 77 Antitrust L.J. 569 (2011); Bret M. Dickey & Daniel L. Rubinfeld, Antitrust Class Certification: Towards an Economic Framework, 66 NYU Ann. Surv. Am. L. 459 (2011); Pierre Cremieux et al., Proof of Common Impact in Antitrust Litigation: The Value of Regression Analysis, 17 Geo. Mason L. Rev. 939 (2010); Michelle M. Burtis & Darwin V. Neher, Correlation and Regression Analysis in Antitrust Class Certification, 77 Antitrust L.J. 495 (2011) [hereinafter Burtis & Neher (2011)].
[4] By way of a simple example with only two proposed class members, if one was overcharged by 20 percent while the other was not overcharged at all, a pooled overcharge model may find an average 10 percent overcharge across the two class members. Such an overcharge could only represent the average experience of the entire class, not each individual member’s actual experience and potential injury.
[5] See, e.g., Drywall Class Certification Motion, supra note 2, at 3–4 (“DPPs’ impact analysis proceeds in two steps: (i) demonstrating that Drywall prices were artificially inflated generally due to the Cartel; and (ii) showing that a price structure exists, making it highly likely that Class members broadly paid those artificially inflated prices.”).
[6] William F. Cavanaugh et al., Trends in Class Certification, US Cts. Ann. Rev. (2023), globalcompetitionreview.com/ review/us-courts-annual-review/2023/article/trends-in-class-certification.
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