Beyond Illinois Brick: The Law and Economics of Cost Pass-Through in the ADM Price Fixing Case

This article reviews the legal standards and the economics of indirect purchaser cases. Drawn from recent cases on behalf of consumers in the ADM price fixing case, it presents cost pass through models for high fructose corn syrup (HFCS), one of the alleged price fixes in the wet corn milling industry. If soft drink bottlers, a primary user of HFCS, have fixed proportion production, constant returns to scale, and if other bottlers input prices are unaffected by variations in soft drink output due to the price fix, then the impact of the price fix on bottlers' cost is equal to the increase in the price of HFCS. The extent of pass through of the increase by bottlers is shown to depend critically upon the market structure of the bottling industry and the shape of the retail demand curve. Flexible demand functional forms are needed to avoid constraining estimated pass through rates to levels above or below full, 100 percent, pass through.