Cycles of Illegality: Antitrust Violations in Corporate America (1987)

This paper explores the relations between antitrust behavior and variations in macroeconomic conditions and Republican-Democratic administrations. Its major premise is that antitrust criminality results when business conditions deteriorate (i.e., during recessionary periods) and profits are squeezed. This hypothesis is tested using longidutinal data from 1927 through 1981 and OLS time series analysis. Fifty-two survivor firms are tracked as to their patterns of antitrust criminality across these sample years. Interpretation of the findings suggests that both economic and political variables are directly related to the criminal behavior of these firms. Antitrust behavior increases as unemployment rates climb and aggregate stock prices drop. It is also apt to occur during Republican administrations. The implications of these findings, as well as how they integrate into the extant literature, are discussed. Corporate is perhaps the most enigmatic of all the possible areas of research in criminology. Originally conceptualized by Sutherland (1949) as white-collar crime, in recent years misbehavior has been defined and dissected by sociologists and criminologists (Clinard et al. 1979; Coleman 1985; Geis & Meier 1977; Shapiro 1985; Simon & Eitzen 1982; Vaughan 1983), lawyers (Clark 1983; Hay & Kelley 1974; Posner 1970), and business/organization scholars (Staw & Szwajkowski 1975; Strachan, Smith & Beedles 1983; Walton & Cleveland 1964). Within this growing literature, there has been very little hypothesistesting research. Indeed, most studies of are descriptive and/or theoretical; they focus on particular corporations, industries, or cases of misbehavior. Therefore, findings may not be generalizable. An*This is a revised version of a paper presented at the annual meetings of the Society for the Study of Social Problems. I thank Andy B. Anderson and Alan Lizotte for advice on statistical techniques, appropriate methods, and logical data base construction. Also, I acknowledge the contributions of my friends and colleagues, Robert Faulkner, Anthony Harris, Lawrence Zacharias, Victoria Swigert, Steven Ainley, Royce Singleton, Rhys Williams, and two anonymous referees. Address correspondence to the author, Department of Sociology, University of Oregon, Eugene, OR 97403. ? 1987 The University of North Carolina Press 943 This content downloaded from 207.46.13.124 on Sun, 11 Sep 2016 06:07:50 UTC All use subject to http://about.jstor.org/terms 944 / Social Forces Volume 65:4, June 1987 other problem with the literature is a conceptual tendency to subsume a variety of violations-labor, trade, manufacturing-under the rubric corporate crime (e.g., Kramer 1982). This conceptual monolith passively encourages scholars to view all as having the same etiology. The present paper addresses these problems by isolating one type of illegality (antitrust violations) and testing for its occurrence using economic and political variables. Theoretical Framework Many scholars implicate financial difficulty as a source of intraorganizational pressure which culminates in illegal actions (Barnett 1981; Conklin 1977; Finney & Lesieur 1982). When profit goals are not achieved, severe organizational strain is likely. Performance pressures mount because of reduced salaries and dividends, declining stock values, and shrinking market shares (Finney & Lesieur 1982, p. 270). A firm's reaction to typically involves ways of reducing costs and increasing revenues. Firms may engage in strategic interaction with competitors, potential industry competitors, and producers of substitute products as well as negotiate with labor and/or governmental regulators-all without making significant changes in the behavior of the corporation (Porter 1980). Yet, there are reasons to suspect that when legitimate market manipulation fails, illegitimate behaviors may substitute. Theoretically, the literature does not distinguish which types of illegality are likely to occur during periods. Empirically, however, certain types of are more apt to occur than others. One such illefality is antitrust (e.g., Asch & Seneca 1975; Staw & Szwajkowski 1975). Low or declining profits may stimulate interfirm conspiracy with subsequent high prices (improved profitability) and strong demand causing conspirators to persist (Lean, Ogru & Rogers 1982; Sultan 1975). Sharply declining profits and performance pressure may trigger attempts to forcefully increase the dependence of purchasers on the firm's products, to heighten entry barriers, and/or to pass profit constraints on to others within a transaction network. Opportunism and self-interest in the search for comparative advantage encourages the cultivation and continuation of transactions through which buyers are moved into weaker bargaining positions. Vehicles for that movement may be illegal tying agreements, selective price negotiation and price discrimination, refusals to deal, and other strategies designed to secure structural leverage and market control (Denzin 1977; Farberman 1975). Finally, large firms may resort to predatory pricing as a means to undermine the market share of weaker competitors. This content downloaded from 207.46.13.124 on Sun, 11 Sep 2016 06:07:50 UTC All use subject to http://about.jstor.org/terms Antitrust Violations / 945 The profit-squeeze-antitrust thesis has been tested empirically with poorly performing firms (Clinard et al. 1979; Staw & Szwajkowski 1975) and/or industries (Bain 1951; Hay & Kelley 1974). Certainly, firm-level decision-making and product market scarcity or munificence have an impact on a company's ability to operate profitably. Yet, other environmental factors also may impose constraints on the firm. Those scholars who acknowledge the role of market in affecting firm action effectively ignore the plausible influence of macroeconomic fluctuations on these same processes. This oversight is troublesome as firms often plot strategy and action based on trends in the economy as a whole, rather than relying solely on industry movements. Gordon (1961) points out that downswings in the business cycle are carefully monitored by firms for forecasting purposes. Companies will isolate some systematic relations between sales of their products and variability in macro indicators (such as GNP, stock price, or industrial production) and adjust their activities accordingly. Thus, the primary goal of this research is to isolate the macroeconomic factors and circumstances which produce antitrust behavior by corporations. The relation between changes in economic conditions and antitrust criminality is traced longitudinally, across all business cycle phases (depression, recession, recovery, and growth). This paper differs substantively from earlier works in that it addresses causation issues (corporate action) as well as variations in government prosecution/regulatory activity (government action). Several researchers (Moe 1980; Neuman 1983; Posner 1970) hypothesize that antitrust will vary by administrative policy, that is, certain political administrations are more likely to pursue violators than others. From this perspective, criminality may be viewed as a consequence of the political labeling process, typically produced through regulator edict. This argument is examined in conjunction with the economic profit-squeeze model where the state plays a secondary, albeit important, role. Given these concerns, it is important to expand upon the idea of business cycle activities.