After The Fall: Stock Price Movements and the Deterrent Effect of Antitrust Enforcement

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.