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

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  • Ronald Cotterill
  • Leonard Egan
  • William Buckhold

Abstract

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.
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Suggested Citation

  • Ronald Cotterill & Leonard Egan & William Buckhold, 2001. "Beyond Illinois Brick: The Law and Economics of Cost Pass-Through in the ADM Price Fixing Case," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(1), pages 45-52, February.
    • Handle: RePEc:kap:revind:v:18:y:2001:i:1:p:45-52
    DOI: 10.1023/A:1026570012375
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    References listed on IDEAS

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    1. Bruce L. Gardner, 1975. "The Farm-Retail Price Spread in a Competitive Food Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 57(3), pages 399-409.
    2. Jerry Hausman & Gregory Leonard & J. Douglas Zona, 1994. "Competitive Analysis with Differentiated Products," Annals of Economics and Statistics, GENES, issue 34, pages 143-157.
    3. repec:adr:anecst:y:1994:i:34:p:06 is not listed on IDEAS
    4. repec:adr:anecst:y:1994:i:34:p:07 is not listed on IDEAS
    5. Cotterill, Ronald W. & Franklin, Andrew W. & Ma, Li Yu, 1996. "Measuring Market Power Effects in Differentiated Product Industries: An Application to the Soft Drink Industry," Research Reports 25229, University of Connecticut, Food Marketing Policy Center.
    6. Henry W. Kinnucan & Olan D. Forker, 1987. "Asymmetry in Farm-Retail Price Transmission for Major Dairy Products," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(2), pages 285-292.
    7. Cotterill, Ronald W., 1998. "Estimation of Cost Pass Through to Michigan Consumers in the ADM Price Fixing Case," Research Reports 25148, University of Connecticut, Food Marketing Policy Center.
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    Citations

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    Cited by:

    1. Ronald W. Cotterill, 2009. "Antitrust Economic Analysis in Food Marketing Channels," Issue Papers 57, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    2. Ronald W. Cotterill, 2002. "Comments on the Food Marketing Institutes’ Submission to the FTC Titled “Supermarket Merger Investigations and Remedies”," Issue Papers 27, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    3. Ronald W. Cotterill, 2005. "The impact of the Northeast Dairy Compact on New England consumers: A report from the milk policy wars," Agribusiness, John Wiley & Sons, Ltd., vol. 21(4), pages 455-471.
    4. Christian Rojas & Alexandra Andino & Wayne D. Purcell, 2008. "Retailers' response to wholesale price changes: new evidence from scanner-based quantity-weighted beef prices," Agribusiness, John Wiley & Sons, Ltd., vol. 24(1), pages 1-15.
    5. Cotterill, Ronald, 2009. "Antitrust Economic Analysis in Food Marketing Channels," Issue Papers 169564, University of Connecticut, Food Marketing Policy Center.
    6. Ronald W. Cotterill, 2010. "Antitrust economic analysis in food marketing channels: a global perspective," Agricultural Economics, International Association of Agricultural Economists, vol. 41(s1), pages 83-91, November.
    7. Bolotova, Yuliya, 2020. "The Price Effects of Milk Supply Control in the U.S. Dairy Industry," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304209, Agricultural and Applied Economics Association.
    8. Ronald W. Cotterill, 2003. "The Impact of the Northeastern Dairy Compact on New England Consumers: A Report from the Milk Policy Wars," Food Marketing Policy Center Research Reports 077, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    9. Peterson, Everett B. & Cotterill, Ronald W., 1998. "Incorporating Flexible Demand Systems in Empirical Models of Market Power," Research Reports 25159, University of Connecticut, Food Marketing Policy Center.
    10. Kim, Donghun, 2004. "Market Structure, Price Pass-Through and Welfare with Differentiated Products," Research Reports 25157, University of Connecticut, Food Marketing Policy Center.
    11. Bolotova, Yuliya, 2022. "Fluid Milk Pricing and Market Power in the U.S. Dairy Industry," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322069, Agricultural and Applied Economics Association.
    12. Donghun Kim, 2004. "Market Structure, Price Pass-Through and Welfare with Differentiated Products," Food Marketing Policy Center Research Reports 080, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    13. Anna Laura Baraldi & Christian Rojas, 2011. "Cost Pass-Through with Network Externalities," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 10(3), pages 177-199, December.
    14. Cotterill, Ronald, 2002. "Comments on the Food Marketing Institutes’ Submission to the FTC Titled “Supermarket Merger Investigations and Remedies”," Issue Papers 169384, University of Connecticut, Food Marketing Policy Center.

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