Class Actions and Private Antitrust Litigation
37 Pages Posted: 7 Feb 2019 Last revised: 8 Feb 2019
Date Written: February 4, 2019
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.
Keywords: Antitrust Lawsuits, Class Actions, Class Action Waivers
JEL Classification: D21, K12, K21, K41, L41
Suggested Citation: Suggested Citation