Thursday, February 7, 2019
Albert H. Choi, University of Virginia School of Law and Kathryn E. Spier, Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER) have written on Class Actions and Private Antitrust Litigation. Recommended
ABSTRACT: The paper analyzes the effect of private antitrust litigation on firms' ability to collude and charge supra-competitive market prices. When the cost of litigation is below a threshold, firms charge high market prices, accommodate lawsuits, and accept the litigation costs as just another cost of doing business. By contrast, when the cost of litigation is above the threshold, the firms charge lower market prices and deter litigation. We model the class action as a mechanism that allows plaintiffs to lower their litigation costs, and show that class actions may or may not be privately and socially desirable. We also show that the firms' private incentives to block class action lawsuits may be either aligned with the social incentives, socially excessive, or socially insufficient. Various extensions, such as settlement, contingent fee compensation, fee shifting (loser-pays-all rule), and damage multipliers (treble damages), are also examined.