Regression Estimates of Damages in Price-Fixing Cases

Abstract

In an antitrust price-fixing case, damages are measured by the difference between the prices paid by the plaintiff purchasers and the prices they would have paid in the absence of defendants' conspiracy. Even small variations in the determination of these differences may become significant because plaintiffs are entitled by statute to receive three times their actual damages.1 Moreover, in a class action there may be thousands of purchasers whose recoveries are based on an industrywide overcharge formula. The difficulty of course lies in estimating the "but for" prices. An obvious idea is to assume that competitive prices during the conspiracy period would have been the same as they were before or after the conspiracy or in interludes of competition within the conspiracy period. Thus, the difference between the conspiratorial price and the actual price from other periods measures the damage. This estimate, however, meets the immediate objection that it is likely to be incorrect because changes in factors affecting price other than the conspiracy would have produced changes in competitive prices if there had been competition during the conspiracy period. These arguments may be illustrated by Ohzo Valley Electrc Corp. v. General Electric Co., 2 one of the well-known antitrust cases involving electrical equipment manufacturers. Plaintiffs contended that the purpose and effect of the manufacturers' conspiracy was to keep transaction prices for large steam turbines close to book prices; they proposed to measure damages by the difference between the average 11% discount during the conspiracy period and the average 25.33% discount that prevailed after the conspiracy had been terminated. Defendants replied that economic conditions for the sellers had worsened in the postconspiracy period and that these conditions accounted for the increase in the discount. They pointed to the presence for the first time of effective foreign competition, an increase in the manufacturers' capacity to produce steam turbine generators (which caused an oversupply), a lessening of growth in demand, and a drop in manufacturing costs (which permitted defendants to offer their products at a lower price). After a bench trial, District Judge Feinberg initially found that these factors did account for some of the increase in the discount in the postconspiracy period. He then confronted the question of how much. Treating the matter as one of