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A Reexamination Of The Profitability Of Price Fixing Using Stock Price Movement: Has New Antitrust Legislation Been A More Effective Deterrent Of Price Fixing?

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  • Detre, Joshua D.
  • Golub, Alla A.

Abstract

The Department of Justice (DOJ) antitrust penalties have become harsher for violating individuals and firms, and the criminal enforcement of cases has become increasingly important during the last 20 years. In this study we investigate whether these changes in antitrust law led to improved effectiveness of antitrust actions with respect to price-fixing over 1981-2001. We measure effectiveness by suppressed stock market values of offending firms after successful Section 1 of the Sherman Act indictment, by duration of the deterrent effect and by the rate of recidivism. We use effectiveness of antitrust enforcement documented by Bosch and Eckard (1991) and Thompson and Kaserman (2001) for 1962-80 as a basis for comparison. Our results show that the changes in antitrust law do improve the effectiveness as measured by changes in market valuations of offenders, but the durability of deterrent effect and the rate of recidivism are left unaffected suggesting that Section 1 of Sherman Act enforcement has very little lasting effect.

Suggested Citation

  • Detre, Joshua D. & Golub, Alla A., 2004. "A Reexamination Of The Profitability Of Price Fixing Using Stock Price Movement: Has New Antitrust Legislation Been A More Effective Deterrent Of Price Fixing?," Staff Papers 28668, Purdue University, Department of Agricultural Economics.
    • Handle: RePEc:ags:puaesp:28668
    DOI: 10.22004/ag.econ.28668
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    References listed on IDEAS

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    1. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    2. Bryant, Peter G & Eckard, E Woodrow, Jr, 1991. "Price Fixing: The Probability of Getting Caught," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 531-536, August.
    3. Bittlingmayer, George, 1992. "Stock Returns, Real Activity, and the Trust Question," Journal of Finance, American Finance Association, vol. 47(5), pages 1701-1730, December.
    4. Huth, William L & MacDonald, Don N, 1989. "The Impact of Antitrust Litigation on Shareholder Return," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 411-426, June.
    5. Block, Michael Kent & Nold, Frederick Carl, 1981. "The Deterrent Effect of Antitrust Enforcement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 429-445, June.
    6. John Thompson & David Kaserman, 2001. "After The Fall: Stock Price Movements and the Deterrent Effect of Antitrust Enforcement," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 19(3), pages 329-334, November.
    7. Newmark, Craig M, 1988. "Is Antitrust Enforcement Effective? Comment," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1315-1328, December.
    8. Bosch, Jean-Claude & Eckard, E Woodrow, Jr, 1991. "The Profitability of Price Fixing: Evidence from Stock Market Reaction to Federal Indictments," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 309-317, May.
    9. Joseph Gallo & Kenneth Dau-Schmidt & Joseph Craycraft & Charles Parker, 2000. "Department of Justice Antitrust Enforcement, 1955—1997: An Empirical Study," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(1), pages 75-133, August.
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    1. Luca Aguzzoni & Gregor Langus & Massimo Motta, 2013. "The Effect of EU Antitrust Investigations and Fines on a Firm's Valuation," Journal of Industrial Economics, Wiley Blackwell, vol. 61(2), pages 290-338, June.

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