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Cost of Antitrust Deterrence - Why Not Hang a Price Fixer Now and Then?

NCJ Number
73785
Author(s)
M K Block, J G Sidak
Date Published
January 1980
Length
9 pages
Annotation
This article argues that threatening price fixers with extreme economic punishment might deter price fixing and require minimal enforcement expenditures.
Abstract
Four economic arguments are frequently presented to argue against the combination of low level detection/enforcement with extremely high punishment. Of these, the article argues, only the fourth provides relevant arguments against such practice. The argument that strict economic sanctions and consequently greater compensation for the victim would increase the private enforcement level, and hence enforcement costs, is irrelevant if the increase in punishment is not linked to a corresponding increase in victim compensation. The argument that equal punishment for the most serious offense is irrelevant if the use of large penalty and small probability of detection/enforcement can deter all levels of price fixing. With respect to risk bearing, the article argues that the small probability of apprehension combined with high punishment does not deter acts beneficial to society but is in fact more effective than a high probability of detection/enforcement combined with lower punishment. The only valid argument against the small probability/large punishment principle is the possibility of judicial error. Thus, the courts might interpret efficient horizontal behavior (e.g., the submission of identical sealed bids for standard products or efficiency-creating agreements between companies) as collusion. Until the judges and prosecutors stop misinterpreting competitive or efficiency-creating horizontal behavior, society cannot optimally allocate its enforcement resources by threatening price fixers with draconian sanctions. The article includes extensive bibliographical footnotes.

Date Published: January 1, 1980