Why Price Fixers Should Go to Prison

• DOI: 10.1177/0003603X8703200403
• Date: 01 December 1987
• Author: Marilyn J. Simon,Gregory J. Werden
• Published date: 01 December 1987
• Subject Matter: Economic

The Antitrust Bulletin/Winter 1987

Why price fixers should go to prison

BY GREGORY J. WERDEN and MARILYN J. SIMON*

917

Intentional price-fixing is a

felony!

punishable by a fine and by

imprisonment not exceeding three years.' The sentence of impris-

Economists, Antitrust Division, U.S. Department of Justice.

AUTHORS' NOTE: The views expressed herein are

not

purported to reflect

those

of

the U.S. Department of Justice.

1The Sherman Act declares contracts, combinations, and conspir-

acies in restraint of trade to be felonies. See 15 U.S.C. §§ I, 3 (1982).

However, criminal antitrust violations can be established only if intent is

shown, whereas civil violations can be established through proof

of

in-

tent or effect. See United States v. United States Gypsum Co., 438 U.S.

422 (1978).

2See 15 U.S.C. §§ I, 3 (1982). The Sherman Act originally de-

clared price-fixing to be a misdemeanor and provided for a maximum

fine of $5,000 and a maximum term of imprisonment of one year. Ch.

647, §§ 1-3, 26 Stat. 209 (1890). In 1955, the maximum fine was in-

creased to $50,000. Ch. 281, 69 Stat. 282 (1955). The Antitrust Proce-

dures and Penalties Act

of

1974, Pub. L. No. 93-528, §3, 88 Stat. 1708

(1974), made price-fixing a felony, increased the maximum prison sen-

tence to three years, and increased the maximum fine for a corporation

to $1,000,000 and for an individual to $100,000. The maximum fine for

an individual was raised to $250,000 by the Criminal Fine Enforcement

Act of 1984 (CFEA) (for offenses committed after Dec. 31, 1984). Pub.

L.

No. 98-596, §§ 6(a), 10, 98 Stat. 3137-38 (codified at 18 U.S.C.

§3623(a) (Supp. II 1984». The CFEA was superseded by the Sentencing

©1988by Federal Legal Publications, Inc.

918 The antitrust bulletin

onment

has

been

imposed

with

increasing

frequency

in

recent

years,'

but

this

trend

has

not

been

applauded

by

most

economists.

Economists

and

economically

oriented

lawyers

who

have

written

about

optimal

penalties

for

price-fixing generally'

have

adopted

Gary

Becker's

model

of

crime

and

punishment'

and

concluded

that

only

fines

should

be

used

as

punishment

for

price-fixing

and

that

only

corporations

should

be punished."

We

argue

that

both

Reform Act of 1984, but the maximum fine was not changed. Pub. L.

No. 98-473, tit. II, ch. II, §212(a)(2), 98 Stat. 1987, 1995 (1984) (codi-

fied at 18 U.S.C. §3571(b) (Supp. IV 1986)).

Those injured as a result of antitrust violations also may sue and re-

cover treble damages and costs, including attorneys' fees. See 15U .S.C.

§15 (1982).

3During fiscal years 1984 and 1985, Antitrust Division files indi-

cate that 126 individuals were sentenced in criminal price-fixing cases.

The government recommended jail terms for 107, and 40

of

them-31.

7

percent-were

sentenced to jail. The proportion of offenders impris-

oned appears to be much higher than in earlier years. Cf. Gallo, Gray-

craft &Bush, Guess Who Came to Dinner:

An

Empirical Study

of

Federal Antitrust Enforcement

for

the Period 1963-1984, 2

REV.

IND.

ORG.

106, 121 (1985) ("During 1963-1973,

4.8010

of convictions resulted

in jail terms. Since the passage of the [Antitrust Procedures and Penal-

ties Act of 1974], 20% of criminal convictions have drawn jail

terms.").

4Exceptions are Blair, A Suggestion for Improved Antitrust En-

forcement, 30

ANTITRUST

BULL.

433, esp. 436-38 (1985), whose rationale

is that individuals make the decisions in corporations, thus, it is more

effective to punish individuals rather than corporations, and Dau-

Schmidt, Sentencing Antitrust Offenders: Reconciling Economic

Theory With Legal Theory, 9

WM.

MITCHELL

L.

REV.

75 (1983), who

seems to derive his conclusions from the dubious assumption

that

bene-

fits to offenders are not part of the measure of social welfare

that

policy

should seek to maximize. Also advocating punishment of individuals

but not specifically recommending imprisonment are Beckenstein &Ga-

bel, The Economics

of

Antitrust Compliance, 52 S.

ECON.

J. 673 (1985).

5See Becker, Crime and Punishment:

An

Economic Approach, 76

J.

POL.

ECON.

169 (1968). For further elaboration, see infra notes 8-10

and accompanying text.

6See W.

BREIT

&K.

ELZINGA,

ANTITRUST

PENALTY

REFORM:

AN

ECONOMIC

ANALYSIS

ch. 6 (1986); K.

ELZINGA

&W.

BREIT,

THE

ANTI-