Economics of cost pass through and damages in indirect purchaser antitrust cases

In recent years, global price-fixing conspiracies in citric acid, lysine, vitamins, and other bulk raw materials have resulted in highly publicized criminal convictions and the payment of billions of dollars in damages to direct purchasers of these products. In addition, defendants in these litigations have faced significant damages claims from indirect purchasers. Assessing damages incurred by indirect purchasers when there is an upstream overcharge is a complex task. Indeed, this complexity is one of the fundamental reasons the Supreme Court cited in the Illinois Brick decision for prohibiting indirect purchaser lawsuits in federal courts. Because such lawsuits continue to be pursued at the state level, however, damages assessments must be made by the parties involved. In this article, the researchers trace out a number of economic relationships that are applicable to these determinations, with particular attention given to the situation in which the law allows for the possibility of a downstream pass through defense.