Overcharges
| Pages | 221-273 |
CHAPTER 8
OVERCHARGES
This chapter provides an overview of the legal and economic issues
involved in estimating damages associated with anticompetitive price
increases or “overcharges.” Such overcharges are commonly asserted as
injuries in price-fixing cases under Section 1 of the Sherman Act1 or
Section 4 of the Clayton Act ,2 and less frequently in monopolization cases
under Section 2 of the Sherman Act,3 as well as under state statutes. The
overcharge usually reflects the difference between the price actually
charged and the price that would have prevailed in the absence of the
anticompetitive conduct (i.e., the “but-for” price under the
“counterfactual”4). Damages, at least for a direct purchaser, would then be
the overcharge times the volume of sales. Measuring the amount of this
overcharge is particularly relevant when the plaintiff is a purchaser rather
than a foreclosed competitor. In the latter case, which is more common
under Section 2, lost profits resulting from the foreclosure present a more
appropriate measure of damages.5
This chapter first discusses some general considerations applicable to
most overcharge damages analyses: construction of the economic model
and estimation of the overcharge. It then discusses the application of these
principles to specific types of antitrust claims—such as price fixing, bid
rigging, monopolization, and tying—highlighting the unique issues that
arise in those situations. Finally, it discusses special cases that may arise
in some or all of these types of situations.
A. Construction of the Economic Model
One of the central challenges of an overcharge analysis is determining
the counterfactual or but-for scenario that would have existed had the
1. 15 U.S.C. §1.
2. 15 U.S.C. §4.
3. HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY: THE LAW OF
COMPETITION AND ITS PRACTICE § 17.5a (4th ed. 2011).
4. Robert N. Strassfeld, If . . .: Counterfactuals in the Law, 60 GEO. WASH.
L. REV. 339 (1992).
5. Roger D. Blair & Christine A. Piette, Antitrust Injury and Standing in
Foreclosure Cases, J. CORP. L. 401, 413 (2006). See also Chapter 9 for a
discussion of damages from foreclosure.
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222 Proving Antitrust Damages
anticompetitive conduct not occurred. While actual prices generally are
known, but-for prices are not observable and thus must be estimated.
Furthermore, even when the contested conduct is clearly defined, the
behavior of firms and the resulting market outcomes in the absence of that
conduct generally are not easy to estimate, as they are the result of complex
interactions under different economic conditions than those that were
actually observed. Estimating the but-for prices generally requires the
construction of an economic model that accounts for the various factors
that influence price, including the anticompetitive behavior. The
relationship between prices and other factors usually is described in the
form of a mathematical equation or set of equations.6
A sound economic model should be capable of distinguishing between
the effects of lawful activities and events that influence supply and demand
(and hence prices) from the effects of the alleged anticompetitive conduct.
In doing so, the model should capture all of the essential economic
relationships and factors that are likely to influence prices. For example,
if costs significantly rose or government regulations materially changed
during the relevant period, a sound model should account for those events
because they presumably would have occurred regardless of the
anticompetitive activities and influenced prices. If the model is incomplete
and omits important explanatory factors, it may be unable to explain price
movement s or it may attribute incorrectly the effects of relevant omitted
factors to the anticompetitive conduct, producing biased results.7
A sound economic model should also reflect a plausible relationship
between liability and the calculated overcharge.8 For example, it is
6. Econometric issues involved in estimating these models are discussed in
Chapter 6.
7. For a more extensive discussion of economic and econometric modeling,
see Chapter 6. Econometric modeling is also discussed in Daniel L.
Rubinfeld, Reference Guide on Multiple Regression, in REFERENCE
MANUAL ON SCIENTIFIC EVIDENCE 181 (2d ed. 2000); An Introduction to
Regression Analysis, i n Chicago Lectures in La w & Economics 1 (E.
Posner ed.) (Foundation Press: 2000); ECONOMETRICS: LEGAL,
PRACTICAL, AND TECHNICAL ISSUES, American Bar Association Editor s,
2014; [hereinafter Econometrics] Franklin M. Fisher, Multiple R egression
in Legal Proceedings, 80 COLUM. L. REV. 702 (1980); Jonathan B. Baker
& Daniel L. Rubinfeld, Empirical Methods in Antitrust Litigation, 1 AM.
L. & ECON. REV. 386 (1999); John E. Lopatka & William H. Page,
Economic Authority and the Limits of Expertise in Antitrust Cases, 90
CORNELL L. REV. 617 (2005).
8. This is particularly important in light of the Supre me Court’s decision in
Comcast Corp. v. Behrend . See, e.g., In re Rail Freight Surcharge Antitrust
Overcharges 223
necessary to articulate an economic basis for assuming industry-wide
impact in the overcharge analysis if the defendants were accused of fixing
prices to a single large customer because the experience of a single
customer (even though large) need not be representative of all customers
in the relevant market.
Additionally, a sound economic model should rely on parameters that
describe the specific instances of anticompetitive behavior and its legal or
regulatory context. For example, the economic model would require a
delineation of the relevant product(s) and the relevant time period. These
parameters may be derived from the factual record, legal or regulatory
guidance (e.g., a statute of limitations), or economic analysis;
alternatively, they may be unsupported assumptions. There is not
necessarily a bright line demarcating the boundaries of the relevant time
period. When there are allegations of cartel behavior, for instance, it would
be important to consider whether the cartel was immediately effective,
whether the agreement was enforced, and the way in which the agreement
broke down. In some instances, the effect of making a particular
assumption may be testable in the process of estimating the overcharge—
for example, by estimating the model using an alternative assumption, or
through the use of econometric techniques.
B. Estimation of the Overcharge
Most overcharge models are designed to determine the relevant
product prices that would have prevailed but for the anticompetitive
behavior and compare these but-for prices to the actual prices paid. The
overcharge is typically calculated as the difference between the price
actually charged and the but-for price, after controlling for all factors that
may affect supply and demand of the relevant product.9 The estimated
overcharge is then multiplied by the relevant quantity to determine
damages (before trebling, if appropriate).
model that “also detects injury where none could exist” cannot sustain class
certification).
9. In a monopoly case, the Second Circuit defined the measure of damages as
“the price increment caused by the anticompetitive conduct that originated
or augmented the monopolist’s control over the market” as distinguished
from “the entire exce ss of the monopol ist’s price over tha t which would
prevail in a competitive market.” See Berkey Photo v. Eastman Kodak, 603
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