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28 Antitrust 90 (2013-2014)
Life after Comcast: The Economist's Obligation to Decompose Damages across Theories of Harm

handle is hein.journals/antitruma28 and id is 196 raw text is: AR TIC LES Life After Comcast: The Economist's Obligation to Decompose Damages Across Theories Of Harm BY KEVIN CAVES AND HAL SINGER HE SUPREME COURT IN Comcast Corp. v. Behrend' reversed certification of a class because the plaintiffs' economist could not decompose damages between the two principal theories of harm or alleged anticompetitive restraints: clus- tering of cable systems (a horizontal restraint), and exclusive dealing of sports programming (a vertical restraint). Comcast confirms that economic experts need not decompose dam- ages in Section 2 monopoly broth cases involving two or more theories of harm, provided that all theories remain part of the case. If one or more theories do not survive scrutiny (e.g., they are deemed procompetitive or not susceptible to common proof of injury), Comcast also highlights the need for the economist to adhere to the basic principle that the harm suffered by class members and the resulting damages they seek to recover must flow only from the anticompetitive conduct encompassed by the surviving theory (or theories). From an economic perspective, these standards for class certification imply that allocation of damages may be neces- sary in cases where one theory of harm is sufficient to gener- ate price effects. In contrast, in cases where both theories of harm are necessary to generate price effects-that is, remov- ing either theory or restraint would cause prices to revert to competitive levels in the hypothetical but-for world used to Kevin Caves is a Senior Economist and Hal Singer is a Principal at Econo- mists Incorporated. Prior to the class certification hearing, both authors served as consultants to the plaintiffs in Behrend v. Comcast. The authors thank Ellen Meriwether, Eric Cramer, and Andrew Curley for valuable com- ments, and Joshua Wright for the kernel of the idea relating to necessary versus sufficient conditions. quantify overcharges-the economic expert should not be required to allocate damages: If one theory of harm is dis- carded, then damages should be attributed in full to the sole surviving theory of harm. Of course, no allocation would be needed if both theories of harm survive scrutiny, or if neither survives. Allocating damages across different sources of harm can be tricky business. By way of analogy, consider a three-legged chair, which remains standing because exactly three separate points of reference (the three legs) are necessary to delineate a flat plane (the floor). Removal of one of the legs causes the stool to lose all functionality, as opposed to (say) only one- third of its value. More generally, regardless of which of the legs is removed, and regardless of exactly how many legs are removed, the end result is the same. It is not clear that the plaintiffs in Comcast ever articulat- ed whether Comcast's horizontal clustering of cable proper- ties-the sole surviving theory of harm-served the same causal role in supporting anticompetitive harm as each of the chair's legs serves in supporting the occupant. If so, then horizontal clustering would have been necessary for Comcast to raise prices above competitive levels, but not sufficient to do so in the absence of the vertical restraints. Under such a fact pattern, treating damages as separable, and asking plain- tiffs to allocate overcharges between Comcast's horizontal and vertical restraints, would be a bit like asking what share of the chair's functionality is supported by each leg. A Brief History of Comcast To understand how we got here, a brief history of the case is in order. Comcast provides cable television services to resi- dential and commercial customers in Philadelphia, among other geographic areas. Starting in the late 1990s, Comcast engaged in a series of transactions to acquire competitors' cable systems in the Philadelphia region in exchange for Comcast's own systems located in other regions. By 2007, Comcast's local market share in Philadelphia had expanded significantly (from less than 25 percent to as much as 70 per- cent).2 The plaintiffs are cable subscribers who sued Comcast for alleged antitrust violations. The plaintiffs originally brought a complaint against Comcast that focused narrowly on Com- cast's swaps and acquisitions in the Philadelphia metropoli- tan area. The original complaint was built on a clustering the- ory, which posited that the aggregation of adjacent cable properties could raise entry barriers for cable overbuilders, such as RCN, that construct new infrastructure in areas already served by incumbent cable systems. Several govern- ment studies had found a positive correlation between clus- tered areas and cable prices.' And a working paper (by one of the authors) had found a negative correlation between clus- tering and overbuilding activity.4 Add these findings togeth- er and one gets a viable antitrust theory of harm. But what was the mechanism that permitted cable operators in these clustered areas to raise cable prices? Were entrants sim- 90 - ANTITRUST

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