Antitrust Sanctions and the Firm's Ability to Pay


Gallo et al. (1994) analyze the sanctions imposed on firms convicted of criminal price-fixing under the antitrust laws. An element not included explicitly in their model is the ability of the firm to pay. Does the firm's ability to pay influence the amount of the fine levied in criminal price-fixing cases?

Data on the amount of fines are matched to seven accounting measures of the ability to pay for a sample of 386 firms convicted of price fixing between 1955 and 1993. Measures of ability to pay range from fund flows from current operations to total equity (technical bankruptcy). Most firms had the ability to pay the actual fines imposed. In many instances, firms had the ability to pay a Beckerian optimal fine. The ease with which actual fines can be paid brings into question the adequacy of deterrence even in those cases where the crime is detected.


Accounting and Finance

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Review of Industrial Organization



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