NCJ Number
59660
Date Published
1978
Length
112 pages
Annotation
THE DETERRENT EFFECT OF ANTITRUST LAW ENFORCEMENT WAS EXAMINED BY DEVELOPING AND EMPIRICALLY TESTING AND ECONOMIC MODEL FOR COLLUSIVE PRICING BEHAVIOR.
Abstract
THE MODEL INCLUDED A PENALTY FUNCTION USING SUCH VARIABLES AS COSTS AND PRICES OF OUTPUT, MARKUP OVER MARGINAL COSTS, TOTAL PROFITS OF COLLUDERS, PENALTY FOR PRICE FIXING, AND THE LEVEL OF ENFORCEMENT EFFORTS. THE MODEL IMPLIED THAT THE PRICE-FIXING DECISION IS NOT A DISCRETE CHOICE, BUT THAT CHANGES IN ENFORCEMENT LEVELS OR PENALTIES FOR PRICE FIXING WILL REDUCE PRICE MARKUPS. EMPIRICAL TESTING OF THE MODEL USING DATA FROM THE MARKET FOR WHITE PAN BREAD SHOWED THAT DEPARTMENT OF JUSTICE PROSECUTIONS FOR PRICE FIXING HAVE REDUCED THE OPTIMAL MARKUP AND THEREBY DETERRED COLLUSION. THIS DETERRENT EFFECT, HOWEVER, DEPENDED ON THE CHANCES OF SUBSEQUENT PRIVATE TREBLE DAMAGE SUITS, ESPECIALLY CLASS ACTION SUITS. RESULTS SUGGESTED THAT CLASS ACTION SUITS MAY BE THE MOST EFFECTIVE PENALTY FOR PRICE FIXING, AT LEAST IN THE BREAD INDUSTRY. FURTHER ANALYSIS OF CLASS ACTIONS ALSO TENTATIVELY SUGGESTED THAT CONSUMER CLASS ACTIONS HAVE AN INDEPENDENT DETERRENT EFFECT, DUE TO THE LARGE SETTLEMENTS INVOLVED AND AN UNEXPECTED DEGREE OF RISK AVERSION AMONG COLLUDERS. A DETAILED DESCRIPTION OF THE MODEL, EXTENSIVE TABLES, AND APPENDIXES (INCLUDING FINDINGS, FOOTNOTES, A GLOSSARY, AND A BIBLIOGRAPHY) ARE INCLUDED. (CFW)