The Economics of Passing on: A Reply to Harris and Sullivan

William M. Landes, Richard A. Posner
1980 University of Pennsylvania law review  
The Supreme Court in Illinois Brick Co. v. Illinois:' held that only the direct purchaser from a price-fixing seller (or other antitrust violator) may sue for damages under the antitrust laws; indirect purchasers (that is, purchasers farther down the chain of production and distribution to whom some part of the cartel or monopoly overcharge may have been passed on) may not. In a recent article we argued that this rule promotes the compensatory, and especially the deterrent, objectives of
more » ... st enforcement. 2 Among the points we made were the following: (1) Under Illinois Brick an indirect purchaser is indirectly compensated for the costs of antitrust violations affecting him because the direct purchaser will charge his customers less when his right of action against sellers to him is not subject to a passing-on defense; and it will not be subject to such a defense if indirect purchasers are denied standing-this is the Hanover Shoe 3 corollary to Illinois Brick. (2) Enforcement incentives, and hence the likelihood of successfully detecting and prosecuting price fixers, are maximized by assigning to that party (direct or indirect purchasers) whose costs of enforcement are lowest the exclusive right to recover damages. (3) The information costs of identifying and suing an antitrust violator, an important component of enforcement costs, are lower for the direct than for the indirect purchaser. Therefore, a rulethe rule of Illinois Brick-that does not dilute the direct purchaser's incentive to sue by giving indirect purchasers standing and thereby
doi:10.2307/3311678 fatcat:6sdr5mj4xbd3njgnppsqpkdo6m