Identifying Cartels that Use the Illinois Brick Ruling as a Shield

“Identifying Cartels that Use the Illinois Brick Ruling as a Shield” looks at a landmark Supreme Court ruling, known as the Illinois Brick (IB) decision, which bars “indirect purchasers” from bringing antitrust suits against upstream product manufacturers. The research suggests the IB ruling not only reduced the costs associated with antitrust enforcement but has the potential to enable firms upstream in the supply chain to engage in collusion through the use of the wholesale price plus fixed fee structure (WPFF). WPFF allows manufacturers to pay a fixed fee to retailers, compensating them for stocking fewer, higher cost items than they would under perfect competition. The fee acts as a disincentive for retailers to level antitrust suits against manufacturers. And consumers, whose welfare is reduced by the collusion, are forbidden from bringing antitrust action by the IB ruling. The incentive to collude is greater when demand uncertainty for a product is higher, the number of retailers in the market is higher, and the number of manufacturers is lower. Public enforcers of antitrust law can use this knowledge to focus their monitoring efforts on firms embedded in the type of supply chain structures described here while using WPFF contracts.