Deterrence and Antitrust Punishment: Firms Versus Agents

• Author: Keith N. Hylton
• Position: William Fairfield Warren Distinguished Professor, Boston University, Professor of Law, Boston University School of Law
• Pages: 2069-2083

2069

Deterrence and Antitrust Punishment:

Firms Versus Agents

Keith N. Hylton

ABSTRACT: Antitrust enforcement regimes rely on penalties against two

groups of actors for deterrence: penalties against the violating firm and

penalties against the violating firm’s agents. Here, I examine the economics

of punishing agents versus firms. My area of application is antitrust, but the

argument applies generally to other fields in which the government has the

choice of punishing the agent, the firm, or both. This analysis suggests that

whenever the firm has an incentive, given existing penalties, to engage in

some illegal act that may result in relatively modest punishment for its agents,

the firm can almost always induce its agents to carry out the illegal act. It

follows that almost any plausible effort to use penalties against agents to deter

price fixing can be undone by the firm’s own system of rewards for agents. For

deterrence, penalties against the firm sufficient to eliminate the firm’s

incentive to fix prices are necessary.

I. INTRODUCTION ........................................................................... 2070

II. INCENTIVES TO COMMIT ANTITRUST CRIMES ............................. 2072

A. AGENT UNDERDETERRENCE PROBLEM .................................... 2073

B. FIRM PREFERS TO FIX PRICES ................................................. 2074

C. FIRM DOES NOT PREFER TO FIX PRICES .................................. 2077

D. INCREASING THE SENTENCE ................................................... 2079

E. DEBARMENT.......................................................................... 2080

III. SOME POSITIVE IMPLICATIONS .................................................... 2081

IV. CONCLUSION .............................................................................. 2082

 William Fairfield Warren Distinguished Professor, Boston University, Professor of Law,

Boston University School of Law. knhylton@bu.edu. This Essay was prepared for the Symposium

Honoring Herbert Hovenkamp at the University of Iowa College of Law, October 23–24, 2014.

For helpful comments I thank Roger Blair, Robert Lande, Daniel Sokol, and symposium

participants.