The Power of the Purchaser: The Effect of Indirect Purchaser Damages Suits on Deterring Anti-Trust Violations
The Supreme Court dramatically changed the landscape of anti-trust purchaser suits in 1977 when it handed down Illinois Brick Co. v. Illinois. The landmark case limited recovery of damages in cases of supra-competitive overcharges to only those entities that had dealt directly with the monopolist or cartel responsible for the overcharge (commonly known as “direct purchasers”). If the direct purchaser raised its price in response to the monopoly price of its input, no longer could subsequent purchasers further down the line (“indirect purchasers”) bring suit for damages against the originator of the monopoly overcharge. And the direct purchaser could sue for the full amount of the overcharge, even if it had effectively passed on the entire overcharge to its own customers.
The Court chose to sacrifice compensation for those who were actually injured (typically the indirect purchasers) in the name of administrative feasibility and deterrence. Reactions to the case were varied, battle lines were drawn, and the dispute as to the correct result is still unresolved thirty years later. There is little controversy over which side of the debate wins arguments about compensation (the anti–Illinois Brick side) or administrative convenience (the pro–Illinois Brick side). But no one is willing to concede deterrence: each side claims its own benefits. Maybe direct purchasers have better information about whom to sue, and instilling the entire damages award with them provides the best incentive to bring suit. But maybe indirect purchasers increase antitrust violation detection rates and are willing to sue suppliers that direct purchasers aren’t.
