Review of Industrial Organization 12: 171–183, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
Antitrust Sanctions and a Firm’s Ability to Pay
Assistant Professor, Department of Accounting and Finance, University of New Hampshire,
Durham, New Hampshire 03824, U.S.A.
JOSEPH L. CRAYCRAFT
Professor, Department of Economics, University of Cincinnati, Cincinnati, Ohio 45221-0371, U.S.A.
JOSEPH C. GALLO
Professor and Head, Department of Economics, University of Cincinnati, Cincinnati, Ohio
Abstract. 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
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.
Key words: Antitrust enforcement, Sherman Act.
The criminaljusticesystem imposesﬁnes and jailterms in order to punish offenders
and deter crime. A major factor in deterring crime is to impose a penalty which
outweighs the beneﬁt received from committing the crime. Gallo et al. (1994)
examine the ﬁnes imposed on ﬁrms convicted of price ﬁxing under the Sherman
Act and its amendments. A model of an optimal ﬁne based on the social cost of
the price ﬁxing behavior is developed in their paper (1994, pp. 56–58). They found
actual ﬁnes constitute a small portion of the optimal ﬁne estimated from the model.
The maximum ﬁnes provided under the law are seldom imposed.
This paper is an extension of that study examining the ﬁrm’s ability to pay
the ﬁnes–actual, optimal, and maximum. The deterrent effect of a ﬁne may be
The authors are grateful to Charles A. Parker for his technical assistance and to the Behavioral
Science Laboratory at the University of Cincinnati for their assistance in preparing the data. The work
was supported in part by the Charles Phelps Taft Memorial Fund. All errors and omissions are the
responsibility of the authors.