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NCJ Number: 77828 Add to Shopping cart Find in a Library
Title: Deterrent Effect of Antitrust Enforcement - A Theoretical and Empirical Analysis
Author(s): M K Block; F C Nold; J G Sidak
Corporate Author: University of Arizona
School of Business and Admin
Ctr for Econometric Studies of the Justice System
United States
Date Published: 1980
Page Count: 105
Sponsoring Agency: National Institute of Justice (NIJ)
Washington, DC 20531
National Institute of Justice/
Rockville, MD 20849
University of Arizona
Tucson, AZ 85721
US Dept of Justice NIJ Pub
Washington, DC 20531
Grant Number: 79-NI-AX-0071; 75-NI-99-0123; 77-NI-99-0071
Sale Source: National Institute of Justice/
NCJRS paper reproduction
Box 6000, Dept F
Rockville, MD 20849
United States of America
Language: English
Country: United States of America
Annotation: This paper formulates and tests a model of collusive pricing behavior using data from the bread industry and concludes that while Department of Justice (DOJ) prosecutions for price-fixing have deterred collusion, class action suits have also played an influential role.
Abstract: Horizontal collusion or price-fixing has been a major focus of Federal antitrust enforcement since the passage of the Sherman Act, but the effectiveness of these efforts in deterring price-fixing has never been evaluated. This paper first describes a model which considers the effect of antitrust enforcement on the decisions of firms within an industry to fix prices collusively. Particular attention is given to the magnitude of the penalties and the possibility of detection. This theoretical model shows that price-fixing generally is not a discrete choice, but is instead a continuous choice regarding the optimal degree of collusive price markup. The optimal markup decreases as enforcement efforts or penalties increase. In order to test the model's implications, markups on white bread in 20 major cities for 1965-76 and measures of enforcement were developed. This study revealed that the DOJ does create a deterrent effect by bringing a price-fixing case since markups in neighboring cities fell in the wake of a DOJ action. However, analysis also showed that the deterrence generated by DOJ actions was largely due to subsequent class action suits. Additional tests performed on the Supreme Court decision in Eisen IV and on the Arizona Bakery Products litigation supported the independent deterrent impact of consumer class actions. This impact can be attributed to the large settlements involved in class actions and an unexpected aversion to such suits among those accused of collusion. The appendixes contain over 80 footnotes, a glossary, statistical tables, and 75 references. (Author abstract modified)
Index Term(s): Antitrust offenses; Class action lawsuits; Consumer protection; Deterrence effectiveness; Sherman Antitrust Act; US Department of Justice
Note: Technical report ISDDE-1-78. Preliminary versions presented at the following 1978 seminars: Law and Economics Workshop, Ithaca, NY; Special Seminar, Dept of Justice, Washington, DC; Special Seminar, Rand Corp, Santa Monica, CA; Finance Workshop, L.A., CA.; Industrial Organization Seminar, Chicago, Il.
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http://www.ncjrs.gov/App/publications/abstract.aspx?ID=77828

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