Economic and Financial Concepts

• Pages: 103-122

CHAPTER 5

ECONOMIC AND FINANCIAL CONCEPTS

This chapter discusses basic economic and financial concepts used in

calculating antitrust damages. It explains factors damages experts

consider, data damages experts use, and calculations damages experts

often make in order to determine the impact anticompetitive conduct has

had on the plaintiffs’ financial health. In principle, there is no single

approach that can or should be used in the determination of damages;

rather, the most effective approach will depend on the particular

anticompetitive conduct at issue (e.g., the unilateral restraint of trade or

horizontal price fixing), the specific legal claims being asserted (e.g.,

overcharges or lost profits), and the available evidence. Regardless of the

context, however, what is common is an effort to measure the incremental

amount by which the plaintiff’s and/or defendant’s financial condition has

been affected by the alleged anticompetitive act(s). As introduced in

Chapter 4, the framework used to undertake this incremental analysis is

commonly referred to as “but-for” analysis and involves a comparison of:

(1) the financial performance of the plaintiff and/or defendant in the actual

world; and (2) the performance of the relevant parties in the world but for

the occurrence of the anticompetitive conduct (the “but-for” world).

Damages experts often rely on the subject company’s financial statements

and more detailed financial data obtained through the discovery process.

Accordingly, this chapter also discusses corporate financial statements and

certain financial calculations often made in measuring antitrust damages.

Details on some related economic concepts and tools, such as regression

analysis, are provided in subsequent chapters.

A. Damages in Antitrust Litigation

The purpose of awarding damages is to compensate the plaintiff for

the effects of the alleged “bad act(s)” committed by the defendant, also

known as making the plaintiff whole.1 The expert must be careful to

1. Antitrust damages differ from damages awarded in other civil litigatio n in

that a private plaintiff who demonstrates har m from an anticompetitive act

receives “threefold the damages by him sustained, and the cost of suit,

including a reasonable attorney’s fee.” 15 U.S.C. §15(a). Treble damages

are awarded, in part, to induce plaintiffs to bring private suits for antitrust

violations. See Palmyra P ark Hosp., Inc. v. Phoebe Putney Me m’l Hosp.,

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104 Proving Antitrust Damages

separate the effects of the anticompetitive conduct from the effects of other

events to ensure that damages flow directly from the defendant’s wrongful

conduct. Other events might have occurred that affect the plaintiff’s

business that are unrelated to the anticompetitive conduct of the defendant.

Or, in many cases, the plaintiff’s business could be affected by both the

anticompetitive conduct committed by the defendant, as well as acts by

the defendant that are part of perfectly legal competition. Moreover, if the

plaintiff alleges multiple wrongful acts, the expert may need to separate

the effects of different acts from one another, as the jury may decide that

only some of the alleged acts resulted in antitrust injury.2 The expert must

also consider any ramifications from the anticompetitive conduct that

either compound or abate the effects of that conduct.3

Antitrust damages often take the form of overcharges or lost profits.

Damages based on overcharges (discussed in Chapter 8) correspond to the

amount by which a plaintiff paid too much (was “overcharged”) as a result

of anticompetitive actions. Damages based on lost profits (discussed in

Chapter 9) correspond to the amount that the plaintiff’s profits were

reduced as a result of anticompetitive actions. These forms of damages are

not mutually exclusive, and both may result from any particular

anticompetitive behavior. For example, overcharges and lost profits can

be related depending on market structure. If a plaintiff suffered economic

harm in the form of an overcharge, then the plaintiff paid too much for

some purchased good. If the plaintiff who paid too much was a reseller of

that good and was unable to raise its own prices, then the plaintiff also

suffered lost profits. Put another way, the harm suffered as a result of the

overcharge is an amount equal to lost profits.

604 F.3d 1291, 1304-1305 (11th Cir. 2010). Treble damages also serve

punitive and deterre nt purposes. See Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, 473 U.S. 614, 635-636 (1985).

2. Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1435 (2013) (“Prices whose

level above what an expert deems competitive has been caused by factors

unrelated to an accepted theory of antitrust harm are not anticompetitive in

any sense relevant here. The first step in a damages study is the translation

of the legal theory of the harmful event into an analysis of the economic

impact of that event.” (emphasis original) (quotation marks omitted))

3. Id. at 1434-35 (explaining that the permutations necessary to calculate

damages caused by four independent theories of anticompetitive conduct

across millions of customers and over a dozen counties was “nearly

endless”).