Review of Industrial Organization 19: 329–334, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
After The Fall: Stock Price Movements and the
Deterrent Effect of Antitrust Enforcement
JOHN S. THOMPSON
Department of Economics, 2107 CEBA, Louisiana State University, Baton Rouge, LA 70803, U.S.A.
DAVID L. KASERMAN
Department of Economics, 203 Lowder Business Building, Auburn University, Auburn, AL 36849,
Abstract. In this paper, we utilize data on stock price movements of ﬁrms indicted on price-ﬁxing
charges to infer expectations of antitrust recidivism. Speciﬁcally, a return of the ﬁrm’s (market-
adjusted) asset value to its pre-indictment level in the post-indictment period is taken as evidence of
stockholders’ expectations of a return to collusive behavior. From these data, we are able to make
direct inferences about the effectiveness of antitrust enforcement actions. Importantly, we ﬁnd that the
stock prices of 85 percent of the ﬁrms in our sample had regained 100 percent of their pre-indictment
levels within one year of the antitrust action. Such widespread and rapid stock price appreciation
casts doubt on the durability of the deterrent effect of Section 1 enforcement.
Key words: Antitrust, collusion, deterrent effect, recidivism.
JEL Classiﬁcation: L40.
Over the past two decades, several studies have attempted to investigate the de-
terrent effect of antitrust enforcement, focusing in particular upon Section 1 of
the Sherman Act, which is the principal weapon used against price ﬁxing conspir-
While the results reported have been somewhat mixed, the overall consensus
at this point appears to be that enforcement efforts do have at least some (perhaps
substantial) beneﬁcial impacts upon observed market outcomes. Speciﬁcally, re-
duced output prices and suppressed stock market values of defendants following
successful Section 1 indictments have generally been interpreted as evidence of
a return to a more competitive-like equilibrium. While that interpretation may
be subject to certain challenges involving, inter alia, the impact of enforcement
actions on stock market values stemming from heightened uncertainty and anti-
The authors thank Roger Blair and Rob Blackstock for suggestions on a previous draft of this
paper. The usual caveat applies.
See, for example, Black et al. (1981), Newmark (1988), and Bosch and Eckard (1991).