Class counsels have incentives to define classes to maximize their profits. Rule 23(b)(3) places some limits on how broadly class counsels can define classes, but it does not provide much guidance on how courts should determine if a class is too broad.
In this article, CRA’s Sean Durkin explains the economic incentives behind class definitions in antitrust cases and why those incentives can lead to classes that are inefficiently broad. He argues that economics suggests an interpretation of Rule 23(b)(3)’s predominance and superiority requirements that would lead to narrower, more efficient classes.
Key takeaways from the article include:
- Class definitions are shaped by financial incentives: Class counsels are profit maximizing firms, and they have incentives to define the class by setting the incremental revenue from adding additional buyers or purchases to the class equal to the incremental costs.
- Profit maximizing class definitions can be overly broad: Class members often have different levels of harm in antitrust cases, and a broad class can reduce efficiency by harming class members with above average overcharges, inducing many class members to opt out of the class, and increasing costs for the legal system.
- An economic interpretation of Rule 23(b)(3) would lead to narrower classes: Courts should recognize the incentives of class counsels and the potential inefficiencies of their class definitions by failing to certify classes when there are large differences in overcharges across class members.
Read the full article on the economic interpretation of Rule 23(b)(3) for antitrust classes here.
