The Economics of Class-Action Lawsuits: On Jan. 20, L’Oreal, Estee Lauder and seven other cosmetics companies offered one free item per customer (“for as long as supplies last”) as penance for having allegedly conspired with department stores to fix prices in the 1990s and early 2000s (but did not admit to any wrongdoing). The total amount the companies agreed to spend on the settlement was $175 million, even though the benefit to any aggrieved customers was merely the price of one cosmetic item. However, lawyers who brought the case took home $24 million.
This article appears in Mar 18-24, 2009.