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© 2005 The Edwardsville Journal of Sociology
Antitrust Violations: Conspiracy in Corporate
Penny R. Lackey
The economy of the world in this
day and age creates new opportunities for business to be conducted globally by
companies. Associated with new opportunities, are more risks.
Today, executives in the
Countries
all over the world rely on market competition to increase the efficiency of
their producers, to deliver the lowest prices and give the best quality to
consumers. They rely on the economic growth that global competition brings to
them. There is a separation between what we want, how much it will cost, and how
we will obtain it. In general, corporate crime can happen for two reasons.
First, there is always pressure to keep up with others and to attain a higher
standard of living. The second reason is that society, in particular the
American culture, rewards the achievement of goals over how they are obtained.
Violations of laws may be forgiven or looked at as, going about business as
usual. It seems the act of deviance is part of the functional structure of the
company.
Looking back at the history of
white-collar crime, the concept was first introduced and defined by Edwin
Sutherland in 1939 during his presidential address to the American Sociological
Association. “White-collar crime,” says Sutherland, is “crime committed by a
person of respectability and high social status in the course of his
occupation.” This definition is a radical definition, is class-based, and
attempts to look at the actor of the crime, instead of the act committed. By
Sutherland addressing this specific type of crime, he initiated a political
movement within the legal system. He also set up opportunities for research
into white-collar crime acts and its actors. By defining white-collar crime in
the way he did and the discussions he presented supporting the theory he
developed, he opened up the arena for controversy in this field of study, which
exists to this present day.
Although Sutherland’s work was
recognized as an important contribution, it did not leave much interest in
corporate offending at the time among those studying crime. There were a few
exceptions during this time, such as Donald Cressey’s (1953) study of
embezzlers, Clinard’s (1952) research on violations of pricing regulations
during World War II, and Hartung’s (1950) work with regulatory violations in
Detroit’s meat industry during the same time frame. Other than those few, there
was little formulation of theory or empirical work being done after
Sutherlands’ emergence into the area of white-collar crime or corporate
criminality. Nevertheless, he was able to essentially open up an area that had
not been previously researched and enable future data to be collected on the
subject.
During the mid-1970’s, there was an
abundance of interest in corporate crime among the scholars. Research by
Paternoster and Simpson (1996) revealed that this was set in motion by two
trends taking place at the time. There was a development of a conflict movement
among crime scholars, and other scientific events, such as instances of
journals reporting cases of illegal doings by corporations, more corporate
crime research being granted by funding sources, and a distrust of U.S.
institutions in the post Vietnam/civil rights/Watergate era. Adding to these
trends was also a movement by consumers, for better quality goods and services,
at fair prices (Clinard and Yeager, 1980; Coleman, 1992).
In this paper, I consider one
specific type of white-collar crime, that of antitrust violations. As noted in
the 1999 issue of the Multinational Monitor, twenty of the top 100
corporate criminals of the 1990’s were in violation of antitrust laws. This
list of offenders includes some well-known companies that we have all heard of
such as Mitsubishi and Pfizer.
Antitrust violations are a form of
organizational crime. This type of crime is where corporations and
organizations commit “socially injurious acts” against their employees,
consumers, the public, or the environment. As consumers, we have come to expect
the best goods and services, at the lowest prices. Also, as Americans living in
a democratic society, we feel the entitlement to the right to have free
competition. Matters of antitrust come into play when companies in which we pay
for their goods and services make arrangements to cheat the customer in one
form or another. This cheating comes in various forms including price fixing,
bid rigging, and market division. In general, the results of collusion by
competitors, has many repercussions, including inflated prices and ultimately
leaving the consumer cheated. There inevitably is a trickle down effect through
many areas, costing competitors, consumers, and industry both money and
resources.
The first category, price fixing,
is an agreement among competitors to raise, fix, or maintain the prices of the
goods or services sold. This category can take many forms, including such
examples as fixing credit terms, not advertising prices, and reducing discounts
or completely eliminating them. Any agreement that restricts competition among
prices falls under price fixing and is in violation of the law. Price inflation
trickles down to the consumers’ wallet. Ultimately, consumers will buy the
product, pay for the services or find substitutes, thus resulting in the misuse
of resources. Furthermore, consumers pay more than need be in the competitive
market.
In the second category, bid
rigging, competitors have made advanced agreements on who will win the bid for
a contract that is going through the process of bidding. The purchasers,
usually federal, state or local governments, solicit bids from various
companies for goods or services. It is important to note that with bid rigging
as well as price fixing, it is not necessary for all competitors to participate
in order for collusion to occur. Furthermore, within this category of
collusion, many forms can be taken, although various sub categories exist that
conspiracies of bid rigging fall into (USDOJ, Division Manual, pg 1). There are
four categories that bid rigging may fall into. The first sub category is bid
suppression. In bid suppression, one or more competitors withhold their bid or
withdraw a current bid, in order to allow the designated competitor to win the
contract. A second category of bid rigging is what is called complementary
bidding. This form is the most frequently occurring form of bid rigging. It
includes bids that are knowingly submitted too high, or with unacceptable
terms, in order to secure the winning bid to the already designated competitor.
The next category is bid rotation. With bid rotation, the various competitors
that are going through the bidding process have made prior agreements amongst
themselves, with varying stipulations, that each is to take turns being the low
bidder. The stipulations may vary, depending on many factors, such as the size
of the contract and the length of time. Subcontracting is the final category.
The competitors usually have taken part in one of the other forms of bid
rigging such as bid suppression, complementary bidding, or bid rotation. They
make a deal with the designated winning competitor to work for them, supply
materials, etc. as subcontractors. This generally takes place in return for the
competitors taking part in one of the categories mentioned above. The
categories all have in common that the competitors have agreed upon terms and
conditions, and have predetermined who the winning bidder will be.
The final category of collusion
among antitrust violations takes the form of Market Division, also referred to
as allocation schemes. In this type of collusion, competitors have divided the
market amongst themselves. They have unwritten agreements that allocate
specific customers, types of products or territories to specific competitors.
The competitors enforce the market division among one another by not breaking
the agreements put forth in the schemes.
Top management of companies and
co-conspirators usually has an idea that they are violating antitrust laws.
They have an idea that they are committing illegal activities when negotiating
prices with other companies in the market. Companies also know they are
participating in illegal activities when they decide on specifics, such as the
amounts of products to be sold and to whom they should be sold. Companies
usually have established an internal type of policing mechanism by which there
is assurance that the agreement will be followed by everyone. The primary
motivation for most companies and competitors is profit seeking. The very act
of deviance becomes a functional, almost permanent, part of a company’s social
system.
Consequently, all forms of
collusion, including price fixing and bid rigging, are illegal and violate laws
put forth by the United States Department of Justice. Each form of collusion is
punishable by the Antitrust Division and carries criminal prosecution.
Collusive agreements can be difficult to detect and usually are agreed upon by
secretive means with only the knowledge of participants. The United States
Department of Justice developed the Antitrust Division that specifically
focuses on antitrust issues. Antitrust enforcement could be called a regulator
of the economic system. Antitrust laws are designed to protect competitors and
more specifically the institution of free competition. Antitrust laws are also
designed to keep consumers safe from unfair pricing practices, as well as
protecting the democracy that the
The Sherman Act, an antitrust law,
was enacted in 1890, and prohibits any agreement between competitors to price
fix, rig bids, or engage in any type of anticompetitive activities. Violation
of this act is classified as a felony. There are three methods by which
enforcement of the law is provided by various procedures. First, criminal
prosecution can lead to a fine of up to $10 million for corporations and a fine
of up to $350,000 for individuals and or imprisonment of 3 years for
individuals. Second, various offices held within the government, such as
attorney general of the United States and some district attorneys, have been
given the duty of preventing possible violations of the law by using petitions
of injunctions, which are punishable as contempt of court. Third, the
corporation or individual that has been convicted of a Sherman Act violation
may be ordered to make restitution to the victims for all overcharges. The
parties involved that are injured by the violations of the law have the right
to sue for damages, with the award being three times over the amount of injury
initially suffered.
This act has been supplemented by
others, such as the Federal Trade Commission Law and the Clayton Law. These
supplementary laws define violations as crimes and have penalties associated
with violations, although most do not explicitly state the criminality. As with
any law, there are strengths and weaknesses associated with these specific antitrust
laws. One weakness is that the amount of fines punishable under this act, at
least for most corporations, hardly makes a dent in the economics of their
company. With large conglomerates, fines of up to $10 million may make a small
dent in their pocket book, but hardly enough to deter future antitrust
violations. Second, the act being a federal statute has a scope that is limited
by Constitutional constraints on the Federal government. A specific clause,
called the commerce clause, allows for a wide interpretation and application of
this act. The act applies to transactions and
business involving interstate commerce. In the case of local antitrust
activities, the act applies to transactions affecting interstate commerce.
Interstate commerce is trade that involves more than one state. This allows for
a broader application of the Sherman Act. If the act was more concise, and
disallowed for a wide application, then it could possibly stop all matters of
antitrust, instead of making a loophole for corporations to maneuver their way
through the system.
A variety of sociological theories
of deviance could be applied to the case of antitrust violations. In recent
years, there have been a variety of theoretical models that have been used to
explain corporate offending, such as neutralization theory (Bensen, 1985),
opportunity theory (Makkai and Braithwaite, 1991; Braithwaite, 1992), anomie
theory (Passas, 1990; Chayet, Waring,
and Weisburd, 2001), labeling theory (Swigert and Farrell, 1980), organization
theory (Ermann and Lundman, 1978; Braithwaite, 1989), and control theory
(Lasley, 1988; Makkai and Braithwaite, 1991). A promising theoretical
development in the area of corporate crime is deterrence/rational choice theory
as an attempt to explain corporate offending.
For this reason, I illustrate the
specifics (crimes and beliefs) in pertaining to violations of antitrust laws
using Rational Choice (Expected Utility Theory) and Merton’s Strain Theory. By
using Merton’s Strain Theory to illustrate the culture of a corporation or the
acts a company may take is to look at specifics of that company and focus on
those acts from a macro standpoint. According to strain theory, there are two
ways for corporations to attain goals – by legitimate and illegitimate means. Strain
theory states that we all strive to achieve the American dream, but not
everyone has equal opportunities or economic equality. We live in a society
stratified by social status. According to Merton, there are five modes of
adaptation. The second mode, innovation, fits most corporate crimes
appropriately. The structure of company could be looked at as its function is
to design its own means to get ahead or innovate, since legitimate means could
not give a company the maximum profits that they would typically be
seeking.
A concern of using this theory in
application to any case of antitrust violation is, however, that the modes of
adaptation depend on each individual’s attitudes toward goals and the means to
achieve them. To completely look at any antitrust case, you must be able to
incorporate the actors, or the corporation and co-conspirators, collectively as
a whole unit committing the crime, not just the acts committed. From a
theoretical standpoint, both the acts by a corporation and the corporate actors
need to be looked at in order to have an overall adequate theory attempting to
explain white collar crime as a whole. The formulation of a theory that covers
corporate crime adequately needs to address both instrumental means (threats of
punishment) and deontological factors (appeals to morality).
In addition to applying Mertonian
theory to cases of antitrust violations, I also use Rational Choice Theory.
Homan (1961) used a basic framework of exchange theory in establishing rational
choice theory in Sociology. This theory suggests two basic assumptions – all
behavior is ‘rational’ in character, and that the likely costs and benefits of
any action are calculated prior to decision-making. This theory takes in
account rationality and morality of people. This particular model of corporate
crime includes various measures of both the perceived costs and benefits of
corporate crime pertaining to the corporation and the individual, perceptions
of shame, a persons’ idea of what the opportunities are to commit the illegal
act, and other characteristics of the organization.
According to Paternoster and
Simpson (1996), the decision to break the law is made by individuals, without
denying that corporations can take on the characteristics of acting agents
responsible for their own conduct. The individuals breaking the law are
affected by the characteristics and imperatives of their business organization.
This includes influences by the risks and benefits they perceive for
themselves, the risks and benefits they perceive for their company, and the
presence or absence of legitimate or illegitimate means within the context of
that particular organization. The costs and benefits can be very diverse;
depending upon the specific organization. Paternoster and Simpson’s (1996)
findings suggest that the perceived costs of punishment, whether they are
formal, informal, or a self-imposed shame, effectively deter corporate crime.
They also found evidence that the perceived benefits of corporate crime,
whether intrinsic or extrinsic, can be successful incentives. In conclusion,
they found that moral considerations are a powerful and independent source of
social control. Simultaneously, they condition the impact of more rational
factors. When moral obligations are weak, compliance is then based on perceived
incentives and costs. They may or may not directly benefit the individual. They
also found evidence that when the costs or incentives are directly related to
the corporation or company, and the costs directed at the individual are controlled,
individuals’ decisions may be affected to commit corporate crime.
In the same manner, it would not be
too far put to say that a company and its actors first perceive the rewards and
costs before making a business decision. They may find it to be a better
business decision in terms of economical growth by choosing to violate the law
and attempt to price fix products in their market. Since it is hard to show
that a company price fixed, a company may choose behavior that would give them
the upper hand and maximize profits, and then rationalize how those profits
would be attained. The actors could then simply rationalize their individual
behavior, and the group as a whole, could then attempt to rationalize each
others’ behavior and the collective action of the group.
On the other hand, the application
of a Rational Choice theory to matters of antitrust violations by an
organization lacks in answering some important questions. It fails to explain
how morality does not work for everyone. Next, it does not interpret how people
cooperate in group settings. Further, if the individual is interested solely in
personal profit, it does not explain why they chose to do something benefiting
someone else – namely the corporation.
In conclusion, the findings of
Paternoster and Simpson (1996) and other research into corporate crime suggest
various alternative strategies that can deal with corporate crime. One such
strategy is that efforts made to enforce particular laws on antitrust among
other laws, when directed at the corporate organization itself, can act as a
powerful deterrent for those individuals who make the decisions within the
structure of the company. Another factor is that those enforcement efforts,
when the individual is targeted as the decision maker, may also serve as an
effective deterrent. Threats of formal or the fear of informal, sanctions
towards the individual may deter the intention to commit corporate crime. A
third factor suggests that moral appeals may be the more powerful tool in
attempts to socially control the corporation. This tool could be used to
strengthen management in order to have them as a line of strategy to
effectively control crime within the business framework.
When addressing crime control in
regards to antitrust violations, both corporations and government need to step
up compliance programs. By performing antitrust counseling and compliance
programs together, this would give up-to-date and practical advice on how to
recognize potential antitrust violations and avoid any wrong doing. This would
protect potential victims of antitrust crimes. Compliance programs would teach
employers and employees what to look for, and what to do in the case of
non-compliance to laws. The government could step in and take more initiative
to stop corporations from wanting to commit antitrust violations by making sure
they are in compliance with the laws on a regular basis, as well as
strengthening the current laws that make unfair pricing practices among other
categories illegal. Next, within corporations there should be an embrace of a
social attitude, whereas information pertinent to the company should never be
revealed. The following information should never be revealed: marketing strategies, price information,
production quantities, or bid proposals to competitors, domestic or
international. This is the easiest and safest way to protect all parties
involved from anything illegitimate, before it takes place. Company officials
need to be more aware of the conversations at hand during meetings. Simply, do
not discuss future plans, and if they are being discussed, the company
officials should get up and leave. Finally, companies should be prepared for
their communications to be monitored.
The white collar crime of price
fixing is almost impossible to prove. Prices can fluctuate themselves for a
number of reasons, so they alone are not proof enough to show price fixing is
not taking place. Furthermore, a written and signed contract between parties is
hardly needed, when there are more subtle, less noticeable ways of reaching an
agreement. Many antitrust cases can be used as examples of the enforcement of
laws by government. Also, other alternatives may steadily decrease, or all
together completely eliminate, the total disregard of business executives and
corporations when they realized the risk of government detection and
prosecution, thus showing corporations and individuals involved in those
corporate structures that antitrust laws are thoroughly enforced. The
understanding and following of such laws is a key requirement for businesses in
today’s marketplace. Those who do not understand or choose to ignore these laws
risk jail time, fines, and damages to both their business and personal
reputations.
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Penny Lackey is a graduate student in the Department of
Sociology and Criminal Justice Studies at SIUE.