When firms collude and charge supracompetitive prices, consumers can bring antitrust lawsuits against the firms. When the litigation cost is low, firms accept the cost as just another cost of doing business, whereas when the cost is high, the firms lower the price to deter litigation. Class action is modeled as a mechanism that allows plaintiffs and attorneys to obtain economies of scale. We show that class actions, and the firms' incentive to block them, may or may not be socially desirable. Agency problems, settlement, fee-shifting, treble damages, public enforcement, and sustaining collusion through repeat play are also considered.
Choi, Albert H., and Kathryn E. Spier.
"Class Actions and Private Antitrust Litigation."
American Economic Journal: Microeconomics,
Firm Behavior: Theory
Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
Asymmetric and Private Information; Mechanism Design
Civil Law; Common Law
Antitrust Issues and Policies: General