Caution Required when Using Managerial Accounting Data in Court

Managerial accounting data can be used in expert analyses conducted in at least two types of antitrust litigation: predatory pricing and price fixing.

A central allegation in predatory pricing cases is that a company is pricing its products below what is profitable in order to drive out competition and create a monopoly. Profitability is typically measured by looking at price in excess of variable cost, so a factual question that often must be answered is whether the defendant priced its products below a measure of its variable cost.

The central allegations in price-fixing cases are that a cartel has colluded to raise prices and purchasers were charged a higher price than would have been set in a competitive market. In some states, indirect purchasers, or those who have bought products at one or more steps removed from the alleged cartel, can also claim damages.

A key economic question in indirect-purchaser cases is how much of the overcharge – the difference between the market and the cartel price – was passed through the direct purchaser(s) to the indirect purchaser(s). Managerial accounting data may be used to measure prices at different points in the distribution chain, and to study the relationship between those prices, thereby revealing the extent to which the overcharge has been passed through.

Managerial accounting expertise, methodical analysis, and clear communication with the company managers can enhance the accuracy and credibility of analyses based on such data.