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Hershey, Mars and Nestlé to face $727m chocolate ‘price fix’ case

By Oliver Nieburg+

18-Dec-2012

Hershey, Mars and Nestlé account for 75% of the US chocolate market
Hershey, Mars and Nestlé account for 75% of the US chocolate market

Hershey, Mars and Nestlé may be liable for $727m in damages for alleged conspiracy to raise chocolate prices in the US between 2002 and 2007.

The companies are to face allegations of price fixing after a judge in a district court in Pennsylvania ruled on 7 December that 91 claimants could lodge a class action against the chocolate giants.

The claimants had relied on expert evidence to prove they were a 'class' - a group with a similar gripe - which the chocolate makers claimed was based on miscalculations.

However, the chocolate manufacturers’ motion to dismiss expert evidence was rejected and the claimants were granted class certification, meaning the case will proceed.

The class includes any person or entity that purchased single serving standard and King size chocolate candy for resale directly from defendants between 9 December 2002 and 20 December 2007.

Damages of $727m

The claimants needed to prove measurable damages to be considered a class and relied on expert evidence from Drs. Robert Tollison, professor of economics at Clemson University and James McClave, an author of academic texts on statistics.

McClave calculated that the average overcharge during the class period was 7% to 8.6% for singles and 9.5% to 11% for Kings and therefore, that the ultimate damages are approximately $524 million for singles and $202 million for Kings.

The three chocolate companies, which account for 75% of the US chocolate market, argued that the case was unsuitable as a class action since it was impossible to determine the price paid for chocolate by the class.

However, the Judge Conner said that McClave’s calculations were acceptable.

Case history

91 cases were brought in several US federal courts mainly in late 2007 and early 2008 alleging that Cadbury, along with Nestlé, Hershey and Mars, had conspired to unlawfully raise chocolate prices three times between 2002 and 2007 in violation of anti-trust laws.

In April 2008 all cases were transferred to the District Court in Pennsylvania.

Allegations and defense

The claimants argue that the companies must have colluded to raise price from 2002 as prices from the mid-90s until that date had remained stable because chocolate makers were weary that consumers would opt for cheaper alternatives from competitors.

The manufacturers blamed raising raw material costs for the increases and said that firms were encouraged to copy peers in introducing price increases since retailers would in turn up the price in shops and would stand to gain.

The claimants argue that the company’s had prior knowledge that competitors would rise prices before a public announcement was made.

Mondelez International-owned Cadbury was a defendant in the initial allegation brought in 2007, but settled case for $1.3m (€995,863) earlier this year.

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