An Alleged Product Defect in RV Refrigerators and NERA’s “Price Premium” Calculation

By Dr. Garrett Glasgow

The Situation

In Papasan et al. v. Dometic Corp., the plaintiffs alleged that Dometic had failed to disclose a product defect in its gas absorption refrigerators.

Gas absorption refrigerators are commonly used in recreational vehicles (RVs) and other settings where electrical power is not always available. Unlike standard residential refrigerators, which rely on a motorized compressor, gas absorption refrigerators work by boiling a chemical mixture in a sealed loop of pressurized tubing. As this mixture condenses and evaporates, it cools the interior of the refrigerator.

The plaintiffs alleged that the boiler tubes in Dometic’s gas absorption refrigerators were prone to leaks that posed a fire risk as well as other safety hazards, and had they been aware of this defect, they would have demanded a lower price for the Dometic gas absorption refrigerator included in their RVs.

NERA's Role

NERA was retained on behalf of the plaintiffs to calculate the “price premium” associated with the alleged failure to disclose the defect—that is, the amount by which plaintiffs overpaid for the Dometic gas absorption refrigerators in their RVs.

To do this, NERA first conducted a conjoint analysis survey to determine the amount by which a warning label describing the fire risk would have reduced the “willingness to pay” for Dometic gas absorption refrigerators.

The willingness to pay for a product is a measure of consumer demand. Several courts have rejected changes in the willingness to pay as a measure of damages, since the market prices that consumers actually pay are also influenced by supply-side factors.

To address these concerns, NERA conducted a market simulation, combining demand-side information (the reduction in the willingness to pay as estimated by the survey) with supply-side information (market prices, market shares, and manufacturing costs for Dometic and its competitors) in order to estimate the change in the equilibrium market price for Dometic gas absorption refrigerators that would have resulted had the defect been disclosed.

The Result

On 24 July 2019, a US District Court judge denied class certification, ruling that the plaintiffs did not have a workable plan to identify eligible class members. The case was dismissed without prejudice.