Should Indirect Purchasers Have Standing to Sue under the Antitrust Laws? An Economic Analysis of the Rule of Illinois Brick

Abstract

Many producers do not sell directly to their ultimate consumers. The producer of a consumer good may, for example, sell it to a wholesaler who will resell it to a retailer who in turn will resell it to the ultimate consumer, and even if there is no wholesale stage of distribution, the ultimate consumer will ordinarily be the direct from a retailer and only an purchaser from the producer. The product may be used as an input into a final consumer good-for example, the flour sold to a baker who makes it into bread that is sold to the consumer. The product may not even appear physically in the final good-for example, the oven used by the baker in making the bread. In these cases as well, the ultimate consumer is only an indirect of the flour or the oven, the cost of which will be reflected in the price of the bread. In Illinois Brick Co. v. Illinois,' the Sureme Court held that indirect purchasers do not have standing to sue for violations of the antitrust laws under section 4 of the Clayton Act,2 which authorizes private treble-damage suits by individuals or firms injured in their business or property by a violation of those laws. To understand this decision, one must go back to Hanover Shoe Co. v. United Shoe Machinery Corp.,3 a suit by a shoe manufacturer against a manufacturer of shoe machinery who had earlier been found to have monopolized the shoe machinery industry in violation of section 2 of the Sherman Act.4 The defendant argued that it should be allowed to show that its customer had not in fact been injured by the antitrust violation because the customer had passed on the costs of the viola-