Really, since when doesn’t price matter? We are talking economics, right?

In a case involving individual distributors in a multi-level-marketing (MLM) industry, the plaintiff’s economic expert sought to estimate the number of would-be distributors the manufacturer would have in its distributor force, in the absence of alleged disparaging remarks and literature. An economic model was developed and an estimating equation was presented as the basis for quantifying the “missing” distributors. Lost sales were directly linked to the missing distributors.

Over the period of time in which the expert had collected his supporting data, the manufacturer had increased the price of the introductory sales kit which was required by all new distributors. The expert had reported that the price of the kit was too small to be of consequence and failed to account for its doubling in price. The re-estimation of the equation, including the price of the introductory sales kit, eliminated all missing distributors. In short, the reason for the decline in the number of distributors was completely due to the doubling of the price of the introductory sales kit.

The omission of the price of the kit in the estimating equation was fatal to the plaintiff’s arguments. It required very little extra work to test for the inclusion of the price of the introductory kit, but the plaintiff’s expert failed to conduct the test. An expert can sometimes miss the most obvious.

When can a benchmark sale be an oxymoron causing economic damages?

An economic expert attempted to group “similar” sales in order to search for the highest rebate offered by the manufacturer. His took the list prices of plaintiff dealer sales and combined these list prices with list prices of sales among all other dealers. Prices of each sale were sorted in increasing order. Similar sales were defined as sales that were within ±1% of the plaintiff dealer’s list price. The sale with the highest rebate in each group was chosen as the benchmark sale and used to compute damages on the plaintiff’s sale.

Unfortunately, the expert did not realize that his method of capturing all sales within ±1% of each plaintiff’s list price resulted in some overlapping groupings. To the surprise of the expert, a single sale could serve as a benchmark in one grouping, but also be a source of economic damages in a neighboring grouping. It could have received a relatively low rebate when it was the subject of the comparison, but also be the benchmark for the next grouping. The alleged damage for that sale was ambiguous. The expert had failed to fully explore the consequences of his method. His credibility was lost.