Antitrust Enforcement During the Great Depression
Jenny R. Hawkins∗
Preliminary and Incomplete - Please Do Not Circulate
May 2014
Abstract: We offer an empirical study of antitrust enforcement by the Department of Justice
(DOJ) and Federal Trade Commission (FTC) during the New Deal. The goal of this research is to
address arguments that antitrust policies during the Great Depression were harmfully lax or even
“suspended”. These arguments stem from the National Industrial Recovery Act (NIRA), lasting
from 1933 to 1935, that allowed industries to collude in specific ways under specific rules. Therefore,
on the surface, the NIRA indicates antitrust policies were nonexistent during this period. Other
non-legislative antitrust actions by regulators and the courts also affected antitrust policy. However, changes in antitrust policy do not imply no enforcement of competition law during this period.
We seek to resolve this growing assumption in the literature by creating a detailed dataset, and
then carefully examining federal antitrust cases from 1925-1939. Resolving this growing assumption
of nonexistent antitrust enforcement is important because some base conclusions on the extent of
the Great Depression and output on an assumption of suspended antitrust policy. Such policy implications during this period have been paralleled to potential policy changes in today’s economic
environment. Our analysis provides a detailed look at the industries and alleged violations investigated and prosecuted by the DOJ and FTC, as well as other non-legislative antitrust policies in
place, the size of the regulatory agencies, the resulting remedies, and length of cases. We examine
the years 1925-1939 due to vacillating antitrust enforcement perspectives of the government between
these years, as well as to compare to periods outside of the NIRA. Complementing our case data
with specifics of the NIRA Codes of Fair Competition (rules of collusion for each industry), as well
as data on other non-legislative antitrust policy, we determine factors that explain antitrust enforcement, thereby providing a clearer picture of exactly how antitrust enforcement responded to changes
in antitrust policy during this fragile period. As of the date of this draft, data is still being entered
and we have not examined any data in detail.
∗
Case Western Reserve University, Department of Economics. I thank Price Fishback and Omar Farooque
for helpful discussions and suggestions. I also thank Christopher Danis for assistance entering data.
1
Introduction
In June 1933, the National Industrial Recovery Act (NIRA) was passed under emergency
legislation in an effort to fight the rapid decline in prices and wages in the early years of
the Great Depression. While the NIRA was limited to two years (with intent of renewal),
the goals of the legislation went beyond the Great Depression in a permanent way. In the
words of President Franklin D. Roosevelt, “it represents a supreme effort to stabilize for
all time the many factors which make for the prosperity of the nation and the preservation
of American standards.” (Dearing, Homan, Lorwin, and Lyon (1934)). Not only was the
goal grand, but too were the provisions of the NIRA. In simple terms, Title I of the NIRA
allowed trade practices that aimed to encourage production and employment to return to
“normal” levels (Nathan (1935)). Under specific terms, it allowed for government-supported
collusion of firms within approved industries. Before the NIRA could be renewed, in May
1935, the United States Supreme Court (“Court”) declared it unconstitutional. The two
years of the NIRA, coupled with (i) government encouragement of trade associations and
industry codes and (ii) the Court’s ruling in the price fixing case Appalachian Coals, Inc.
v. United States (1933) 1 certainly changed antitrust policy in the United States during this
period (Bittlingmayer (1995)).
One important question, and the relevancy to today’s economic situation, is whether,
contrary to the government’s intentions, these changes in antitrust policy during this period
negatively affected economic recovery. Cole and Ohanian (2004) and Eggertsson (2012)
both address this question in considering a dynamic general equilibrium model of the NIRA.
Cole and Ohanian (2004) conclude that under the assumption of monopoly pricing during
the Great Depression, the contraction lasted seven years longer than it may have otherwise.2
While both of the Cole and Ohanian (2004) and Eggertsson (2012) models hinge on an
1
The Court’s decision in Appalachian Coals changed the per se rule in price fixing to a rule of reason.
The per se rule was reinstated in 1940 in U.S. v. Socony-Vacuum Oil (310 U.S. 150 [1940].
2
This conclusion of Cole and Ohanian (2004) was popularized in the media amidst several discussions
of their research, including articles such as “How Government Prolonged the Depression” February 2, 2009,
The Wall Street Journal Opinion page: http://online.wsj.com/article/SB123353276749137485.html#.
2
assumption that firms collude3 , Eggertsson (2012) finds that output actually increases,
in favor of these policies. However, despite changes in antitrust policy, it remains to be
determined the correctness of the assumption made by both Cole and Ohanian (2004) and
Eggertsson (2012) that collusion was allowed to run rampant and antitrust policies were
essentially non existent during the New Deal. In other words, a change in antitrust policy
towards more lenient measures does not necessarily imply antitrust enforcement during this
period was lax or nonexistent.
The assumptions made by Cole and Ohanian (2004) and Eggertsson (2012) are not
uncommon in the literature; others claim that antitrust policies were not enforced during
the New Deal. While Bittlingmayer (1995) offers a thoughtful look at the effects of the NIRA
on recovery, he refers to the NIRA as “suspension of antitrust”. However, his work indicates
this statement to be a misleading generalization, common in the literature. He continues
to indicate that only several major industries participated in the NIRA by governmentapproved restriction of output or capacity, collusion on pricing or costs information, of
prohibition of sales below costs, as is evident in studies of the NIRA. Regardless, even
if only a small subset of industries participated in government-sponsored collusion, it is
unclear whether these industries still behaved in non-government-approved anticompetitive
behavior probed by regulators. Cox (1981) states, “Even though there was little evidence of
an increase in monopoly [during the Great Depression], the belief was widely held,” and he
provides an example from Berle and Means (1932) who argue that industries had become
highly concentrated, yet their evidence does not support this claim.
In an effort to clear up the enforcement of antitrust policies during the New Deal, this
research addresses (i) the extent to which antitrust policies during the New Deal affected
antitrust enforcement during the Great Depression and (ii) whether, outside the limitations
of the NIRA and Appalachian Coals, antitrust regulators were otherwise lax in enforcement.
The first goal of this research is to carefully investigate antitrust enforcement during
the New Deal to understand exactly how antitrust policies affected enforcement. Most of
3
Eggertsson (2012) states that “The NIRA declared a temporary “emergency” that suspended antitrust
laws...”.
3
the literature focuses on evaluation of the NIRA and its codes to examine collusion (see,
e.g., Nathan (1935), Taylor (2007), Alexander (1997) and Alexander and Libecab (2000)).
Posner (1970) is the only work to take a substantial look at antitrust enforcement, though his
focus is not on the Great Depression, and his analysis does not consider the NIRA codes nor
does he present a yearly analysis of the industries and goods/services for which regulators
enforced antitrust policy. In the spirit of Posner (1970), we look at DOJ and the FTC cases
between the years 1925-1939 to examine which industries, goods/services and antitrust
violations were the focus of regulators during these years to gain a better understanding
of antitrust enforcement under Franklin D. Roosevelt’s leadership. We also consider the
length of cases, sanctions and remedies, types of violators (firms versus individuals), DOJ
and FTC antitrust appropriations, and civil versus criminal pursuit of enforcement to clear
up the picture of antitrust policy beyond the NIRA.
Then, incorporating (i) the industries and codes of collusion using data from the NIRA’s
Codes of Fair Competition and (ii) non-legislative data regarding influential Supreme Court
antitrust cases during this time and the FTC’s encouragement and sponsorship of industry
codes and trade association conferences , we hope to combine our DOJ and FTC case
information to more carefully examine enforcement of the antitrust policies during this
period, even when government policies allowed for some violations of antitrust laws.
2
Antitrust policy through the mid 1930s
With fairly young antitrust policy in place at this time, part of our investigation of
antitrust enforcement during the New Deal includes a more detailed look at the policies
and the regulators dictating the law, outlined in Table 1, below. Antitrust policy was
led primarily by the Sherman Act of 1890 and the Clayton Act of 1914 (along with its
amendment, the Robinson-Patman Act of 1936).
After passage of the Sherman Act in 1890 and up to 1933, the Assistant to the Attorney
General dealt with antitrust matters. In 1933 the Antitrust Division of the Department
4
of Justice was established under Franklin D. Roosevelt, with Harold M. Stevens appointed
as the first Assistant Attorney General of the Antitrust Division. Along with the DOJ’s
Antitrust Division, the FTC (as part of the Federal Trade Commission Act of 1914) also
regulates competition law in the United States. The Robinson-Patman Act, which focuses
on price discrimination, is enforced primarily by the FTC and not the DOJ.
A closer look at the focus of various antitrust regulators also can reveal the relative
enforcement of antitrust policies. Following Theodore Roosevelt’s strict enforcement of
antitrust, during the teens and through the 1920s, antitrust policies were somewhat lax
through the allowance of trade associations and even sponsored “Trade Practice Conferences” by the FTC beginning in 1925. As a regulator, Herbert Hoover supported trade associations; however, as President, he was a strict enforcer of antitrust policies and rejected
any proposals to relaxed enforcement. On October 25, 1929, the Hoover administration
took a public stance by declaring strict enforcement of antitrust policy. This stemmed from
the argument that lax antitrust policies had created an unhealthy boom in mergers and the
stock market during the 1920s (Bittlingmayer (1995)). Once Franklin D. Roosevelt took
office and signed the NIRA in 1933, he had loosened the policies of Hoover back to the
aims of the Coolidge administration for promoting exchange of information on prices, costs
and production through trade associations (also known as the “Open Price Movement”).
However, Roosevelt’s administration was not particular to lax antitrust enforcement. In
1938, President Franklin D. Roosevelt appointed Thurman Arnold as head of the Antitrust
Division of the DOJ. Arnold became known as one of the staunchest antitrust enforcers to
date.
As Hawley (1966) points out, this alternating enforcement of antitrust laws began with
the Sherman Act and continued through the Great Depression as different administrations
fought what they believed was “cutthroat competition”. However despite this seesawing
policy, it appears that regardless of the administration in office, the FTC was constant
in its support of first, trade associations, then trade association conferences, and finally
proposed industry codes of industry behavior. These industry codes were supported by the
5
FTC under the belief it was their obligation to determine and then sanction such behavior.
Yet, arguably these conferences and codes masked collusion by firms.
The DOJ and U.S. Supreme Court also exhibited some decisions in the 1920s that
indicate some lax enforcement of antitrust policy during those years. With the appointment
of William Donovan as Assistant to the Attorney General, and therefore head of antitrust,
the DOJ appeared to advise trade associations, though it is unclear to what extent and
in what capacity. Several important Supreme Court cases also loosened the precedent on
mergers, first in U.S. vs U.S. Steel (1920), where U.S. Steel gained 90 percent of the steel
industry’s market share, and then in U.S. vs International Harvester (1927). However,
by the Hoover administration, the DOJ was strictly enforcing antitrust laws against trade
associations that had formed industry codes supported by the FTC (and possibly the DOJ
itself) in the mid-1920s. It also required a change in the FTC’s Trade Practice Conferences
and the types of codes created therewith (Bittlingmayer (1995)).
Besides the Open Price Movement and its continued promotion through Trade Practice Conferences, the NIRA was the other major antitrust policy during this period. As
mentioned above, the NIRA was passed in June 1933 for a two year period, but before it
could be renewed, the Supreme Court declared it unconstitutional in 1935. In an attempt
to combat the collapse in output during 1929-1933, the National Recovery Administration (NRA), the regulatory agency created to oversee the NIRA, approved “Codes of Fair
Competition” proposed by trade associations. With approval, the codes held for the entire industry pertaining to those codes. All of the codes were exempt from antitrust law.
The President was given the power to prescribe new codes, as well as cancel or modify any
previously established codes. The legislation further allowed for “agreements” between people in the industry, trade associations, and labor associations that also were exempt from
antitrust laws (Nathan (1935). Thus far, we have no evidence of the extent of such agreements. The NIRA also provided for collective bargaining and the freedom to join unions, as
well as requiring employers to adhere to restrictions on minimum pay and maximum hours
6
(Bittlingmayer (1995)).4
During the years the NIRA was in effect, almost 800 industry codes were passed. Among
those industries not participating were agricultural, steam railroads, nonprofit institutions,
and professional services (Alexander (1997)). According to Taylor (2007), larger industries
were favored in faster and possibly more lenient approval of codes. Bittlingmayer (1995)
offers evidence that while some major industry codes were detailed and clearly anticompetitive in the usual sense, other major industries did not focus on price collusion. For example,
the automobile code focused on labor issues. In our analysis, a closer look at the industries
for which regulators prosecuted firms and the codes existing for those industries may reveal
more information about antitrust enforcement. Additionally, following the NIRA, some
industries still adhered to previously signed codes. One would expect tougher antitrust
authorities to therefore begin tighter regulation on such industries openly continuing to
collude.
Our goal is to take the known changes in antitrust policy, specifically FTC Trade Practice Conferences and initial creation of industry codes, the NIRA, and changed precedence
in mergers and price fixing through Supreme Court decisions to then examine the anticompetitive violations of firms prosecuted by the DOJ and FTC in order to determine how
antitrust enforcement ensued during this turbulent period.
Antitrust policy following the NIRA is less clear. As indicated above, at least some
industries continued to collude, and enforcement of antitrust policies within firms in these
industries is to be determined in our examination.
3
Related Literature
As mentioned above, Cole and Ohanian (2004), Eggertsson (2012), and Bittlingmayer
(1995) seek to answer whether output increased or decreased due to the passage of the
NIRA. While this is not our focus, these questions point out the important question of
4
These regulations covered Title I of the NIRA, with Title II addressing public works/construction
projects and Title III addressing provision related to amendments of the Emergency Relief and Construction
Act.
7
Date
1890
1901-1909
1910-1920
1914
1920
1923-1929
1924
1925
1927
1929-1933
1929
1929 (Oct 25)
1929 (Oct 29)
1933 (March)
1933 (June)
1933 (July 16)
1933 (July 19-Aug 31)
1934
1935 (May 27)
1935 (summer)
1936
1938
Table 1: Timeline of relevant events
Event
Sherman Antitrust Act
Strict antitrust enforcement under Theodore Roosevelt
Open Price Movement where trade associations sought to exchange information freely
Clayton Act
Leniency by SCOTUS in mergers: U.S. vs U.S. Steel (1920)
decided
Lenient antitrust enforcement under Calvin Coolidge (promotion of trade associations)
Continued leniency under William J. Donovan, appointed
DOJ Assistant to the Attorney General
FTC begins sponsoring “Trade Practice Conferences”
Leniency by SCOTUS in mergers: U.S. vs International Harvester (1927) decided
Strict antitrust enforcement under Herbert Hoover
Numerous industries have adopted “codes” under FTC guidance
Hoover declares strict enforcement of antitrust
Black Tuesday
Appalachian Coals, Inc. vs United States decided by SCOTUS
making price fixing easier
NIRA Passed
FDR signs first code (for cotton textiles)
President’s Reemployment Agreement (“blanket code”)
signed for labor issues
Compliance Crisis
NIRA declared unconstitutional (via Schechter Poultry Corp.
vs U.S.
90 percent of cotton textile firms still adhering to industry
codes (though not legally enforceable)
Robinson-Patman Act on price discrimination
Thurman Arnold appointed Assistant Attorney General of the
Antitrust Division
8
how strict antitrust enforcement was during the New Deal, holding constant the change in
antitrust policy. Others look at the NIRA and industry codes to examine how industries
actually responded to the NIRA (see e.g., Taylor (2007), Alexander and Libecab (2000),
and Alexander (1997)). Cox (1981) is the only known work that attempts to investigate
monopoly behavior before, during and after the Great Depression. However, his focus is
not on the effects of antitrust policy and antitrust enforcement, but the ex post realization
of monopolies.
Posner (1970) not only enumerates DOJ (and certain, but not all FTC) antitrust cases
from 1890-1969, but groups them in years of five by violation. This enumeration, while
useful in a grand scheme, is not as useful for a detailed analysis of antitrust policies during
the New Deal. Therefore, in the spirit of Posner, we look at DOJ and FTC antitrust cases
during 1925-1939 on a yearly basis and break them down by violation and industry, as well
as look at other factors neglected by Posner (1970) such as budget appropriations and FTC
trade conferences. Additionally, Posner does not offer a detailed statistical analysis; he
provides no statistical tests nor the relationships between variables.
Posner (1970) provides some theoretical discussion regarding what determines antitrust
enforcement. With respect to an economic downturn, there’s more incentive to violate antitrust laws during downturns, but there may be fewer resources to reveal and investigate
such violations. Therefore, does the observation of fewer investigations indicate fewer violations or less enforcement? Posner (1970) suggests two hypotheses related to economic activity: (i) Level of economic activity and antitrust enforcement are positively correlated, as during upturns, there are more resources for enforcement, even if there is less incentive to violate
antitrust laws. (ii) Level of economic activity and antitrust enforcement are negatively correlated. During economic contractions, the government may be harsher on anticompetitive behavior, seeking violations more vigorously. As Gallo, Dau-Schmidt, Craycraft, and Parker
(2000) indicate, this follows the theory of regulation by Peltzman (1976) where“regulation
will tend to be more heavily weighted toward ‘producer protection’ in depressions and
toward ‘consumer protection’ in expansion”. This theory might seem to apply during the
9
Great Depression and with respect to the NIRA, as firms have more incentive to seek protection from the government during downturns due to increased competition resulting from excess capacity experienced during a contraction. Gallo, Dau-Schmidt, Craycraft, and Parker
(2000) suggest this behavior was observed during the 1930s, but does evidence show the
government was less stringent on firms during the Great Depression, when controlling for
the size of the DOJ and FTC and other factors?
Posner (1970) finds a positive correlation between the number of DOJ antitrust cases
and real GNP for the years 1890-1940, generally. From his Figure 1, we see that pre-Great
Depression, correlation is unclear; as GNP slowly increases, cases widely fluctuated and
decrease at a point of an increased growth rate between 1925-1030. During the Great
Depression, the trend in cases appears to follow the trend in GNP. Posner’s analysis for the
years 1940-1970 reveals that even though real GNP rose, the number of antitrust cases did
not increase significantly. Gallo, Dau-Schmidt, Craycraft, and Parker (2000) find similar
results from 1955-1972 and an even stronger case against the positive correlation theory in
the 1980s, as they find that the number of cases decrease significantly with growth in real
GNP. Therefore, for our period of examination, once we include all DOJ and FTC antitrust
cases, it is unclear which hypothesis presented by Posner (1970) will hold. During the Great
Depression, we expect Posner’s hypothesis (i), above, to hold; however, this may be due
to industry codes formed before the NIRA and during the NIRA and not necessarily the
contraction itself. In other words, a decrease in cases may be due to the possible change
in regulators’ budgets and other contractionary effects, or it may be due to the relaxation
of competition law. However, prior to the Great Depression, when industry codes were in
effect, though collusion through such codes was not formally government-supported, the
correlation between cases and GNP is unclear. If we are to argue that industry codes that
allowed collusion, whether formally or not, led to a suspension of antitrust enforcement, we
would expect antitrust cases to decline during the period the FTC supports and sponsored
trade associations and the formation of industry codes.
10
Posner (1970) and Gallo, Dau-Schmidt, Craycraft, and Parker (2000) analyze another
metric for enforcement: a civil or criminal remedy. While both remedies involve sanction,
clearly a criminal remedy is of higher magnitude and higher economic costs. Several have
investigated the deterrent effects of a civil versus criminal remedy. Calkins (1997) finds
that civil fines have a smaller deterrent effect than a criminal fine. Therefore, one might
hypothesize that a criminal remedy as opposed to civil remedy indicates greater antitrust
enforcement. On a first look, Gallo, Dau-Schmidt, Craycraft, and Parker (2000) find that
from 1925-1934, the DOJ pursued twice as many civil cases as criminal cases. They also find
that of those imprisoned for antitrust violations, none were imprisoned not only because of
price-fixing charges, but in addition to findings of intimidation, threats or violence. From
1935-1939, they find that for 57 DOJ antitrust cases, 53 per cent were civil. Therefore,
criminal cases clearly are not uncommon. We want to examine civil versus criminal cases in
more detail, as the remedy and the type of case can reveal stricter enforcement of antitrust
policy.
4
Data
We collect data on DOJ antitrust cases from the Annual Report of the Attorney General
(Department of Justice (1920-1940)) and FTC antitrust cases from the Annual Report of
the Federal Trade Commission (Federal Trade Commission (1920-1944a). These Reports
provide very brief summaries of cases, providing at least one defendant name, as well as
indications of the violation, good or service, industry, and outcome. Additional DOJ case
information and the industries which commit violations is provided in a book summarizing
federal antitrust cases Department of Justice (1936); however, not every case initialized in
any given year is summarized in these publications. More detailed explanations of DOJ cases
are provided in the CCH Trade Regulation Reporter (also known as the CCH Bluebook)
(Commerce Clearing House (1932-1939)) and FTC cases in the Federal Trade Commission
Decisions (Federal Trade Commission (1920-1944b)). These are the sources used by Posner
11
(1970), which includes only cases finalized in a given year. Though the data analysis becomes
more complicated when we include all cases instigated in a particular year, whether finalized
or continued, we believe the fact a case was instituted and information about the industry
and good for which the case belongs in that given period is revealing information about
antitrust enforcement. Therefore, we include these additional cases in our analysis, but
must be careful in how we use this information and account for replication when relevant.
We complement our data collection from the Attorney General’s Reports and the FTC
Reports with these three additional sources of data.
We consider the years 1925-1939 because we want to investigate other non-legislative
antitrust policies and how the also affect antitrust enforcement during the Great Depression.
We also include these years to compare enforcement outside of the NIRA. Furthermore, the
fact that prior to the NIRA, the FTC encouraged trade associations and sponsored Trade
Practice Conferences for industries to form codes, indicates that the government, to some
degree, was exempting aspects of competition law prior to the NIRA. Therefore, to some
extent, collusion was permitted in certain industries well before the contraction. We want
to understand how the formation of industry codes before the Great Depression affects
antitrust enforcement.
Finally, we include the years 1925-1939 for comparison to Posner (1970)’s reporting of
data in five-year increments. Table 2 is a replication of parts of tables from Posner (1970) of
DOJ and FTC total cases for the years 1925-1939. Table 3 lists the total number of cases we
find described in the Attorney General Reports. Quick observation reveals Posner’s totals
and the totals from these Attorney General Reports do not equate. Posner considers only
cases finalized in a given year.
We keep record of all cases initialized in a given year, but ultimately have to avoid
duplication for the continuance of the cases. The cases listed in Table 3 include all cases
pending and initialized in a given year. Therefore, all cases pending in the next year are
duplicated in the total for the following year. Also included in Table 3 is the Attorney
General report of cases finalized in each year. These totals also do not equate to Posner’s
12
Table 2: Total DOJ and FTC cases reported in Posner (1970) and to be compared;
Robinson-Patman Cases and FTC Trade Practice Conferences to be determined.
Year DOJ
FTC
RobinsonFTC Conf
Cases
Cases
Patman Cases
1925
12
21
tbd
tbd
1926
9
4
tbd
tbd
1927
13
8
tbd
tbd
1928
17
10
tbd
tbd
1929
8
17
tbd
tbd
1930
7
12
tbd
57
1931
3
4
tbd
tbd
1932
5
3
tbd
tbd
1933
9
4
tbd
tbd
1934
6
14
tbd
tbd
1935
4
30
tbd
tbd
1936
5
33
75 (1936-39)
tbd
1937
7
18
tbd
tbd
1938
10
28
tbd
tbd
1939
31
31
tbd
tbd
totals. We have yet to resolve the discrepancies. Based on Posner’s totals, we expect a total
of 146 DOJ cases and 237 FTC cases to analyze over the period 1925-1939.
Table 4 lists the reported number of inquiries and formal complaints by the FTC. Comparing the formal complaints to Posner’s total FTC cases shows an obvious discrepancy for
the only year entered, 1930. Of the formal complaints reported by the FTC in each year,
various violations are included. However, Posner only reports restraints of trade cases.
Tables 5 and 6 provide appropriations to the Antitrust Division and the FTC for each
year, with an itemization of salaries and general work for the FTC. Also included for the
DOJ (currently unknown for the FTC) is additional remedy information for DOJ cases,
including both civil and criminal fines, criminal convictions and total number of months of
incarceration.
Potential problems with our analysis include dealing with the following. First, as highlighted in Gallo, Dau-Schmidt, Craycraft, and Parker (2000), many cases could result from
one initiated case that provided leads to other violations within an industry. Therefore,
13
Table 3: DOJ Antitrust Division total
Year Total
Civil
(pending
and init)
1925
59
29
1926
67
32
1927
45
29
1928
48
26
1929
43
26
1930
44
32
1931
39
29
1932
22
18
1933
25
21
1934
22
tbd
1935
tbd
tbd
1936
31
18
1937
31
15
1938
tbd
tbd
1939
tbd
tbd
civil and criminal cases (Source: AG Reports)
Crim
Finally Civil
Crim
deter- finally finally
mined det.
det.
30
11
8
3
35
30
18
12
16
23
15
8
22
22
12
10
17
13
8
5
12
9
6
3
10
21
14
6
4
4
2
2
4
6
4
2
tbd
8
tbd
tbd
tbd
tbd
tbd
tbd
13
10
7
3
16
3
tbd
tbd
tbd
tbd
tbd
tbd
tbd
tbd
tbd
tbd
Table 4: FTC total inquiries and formal complaints (Source: FTC Reports)
Year Total inquiries Formal Complaints
1925
tbd
tbd
1926
tbd
tbd
1927
tbd
tbd
1928
tbd
tbd
1929
tbd
tbd
1930
1505
172
1931
tbd
tbd
1932
tbd
tbd
1933
tbd
tbd
1934
tbd
tbd
1935
tbd
tbd
1936
tbd
tbd
1937
tbd
tbd
1938
tbd
tbd
1939
tbd
tbd
14
Table 5: DOJ Antitrust Division appropriated budget, total fines, total convictions and
total jail time (Source: AG Reports)
Year Budget Civil Fines Crim Fines Convictions Jail time (mo)
1925 $203,930
$67.90
$235,500
2
tbd
1926 $228,000
$297.58
$292,301
4
0
1927 $200,000
tbd
$335,850
4
72
1928 $198,000
$1,725
$114,500
5
0
1929
tbd
$3,658
$37,000
4
36
1930 $203,600
tbd
$46,025
69
240.5
1931
tbd
tbd
tbd
tbd
tbd
1932 $204,160
tbd
$100,865
100
tbd
1933 $150,000
tbd
$222.10
2
tbd
1934 $153,000
tbd
$559
15
48
1935
tbd
tbd
tbd
tbd
tbd
1936
tbd
tbd
tbd
tbd
tbd
1937
tbd
tbd
tbd
tbd
tbd
1938
tbd
tbd
tbd
tbd
tbd
1939
tbd
tbd
tbd
tbd
tbd
Table 6: FTC appropriated budget itemized by salaries and general work (Source: FTC
Reports)
Year
Budget
Salaries for Commissioners General Work
1925
tbd
tbd
tbd
1926
tbd
tbd
tbd
1927
tbd
tbd
tbd
1928
tbd
tbd
tbd
1929
tbd
tbd
tbd
1930 $1,495,821.69
$50,000
$1,390,971.82
1931
tbd
tbd
tbd
1932
tbd
tbd
tbd
1933
tbd
tbd
tbd
1934
tbd
tbd
tbd
1935
tbd
tbd
tbd
1936
tbd
tbd
tbd
1937
tbd
tbd
tbd
1938
tbd
tbd
tbd
1939
tbd
tbd
tbd
15
Variable
Date
Length
Defendant
Defendant type
Plaintiff name
Industry
Alleged violation
Court
Disposition
Winner
Sanction
Remedy
Fine
Jail time
DOJ budget
FTC budget
Table 7: Variables
Explanation
year, month and day case initiated and then decided
number of months from initiation to final decision (including appeals)
names of all defendants, when known
dummy variable whether defendant(s) was firm or particular individual in that firm. If individual, what type (director, owner, president, vice president, secretary/treasurer, corporate officer, other)
Typically US, but in cases where a private suit was appealed, it
may be a previous defendant
in detail and by SIC code, broken up by division, major group,
industry, and four-digit SIC code
in detail and coded under 27 possible violations
court where final decision made
Defendant’s plea and the court’s decision
dummy variable = 1 if US; 0 otherwise.
explanation of the sanction in detail
dummy variable for civil (injunction, fine or both) or criminal
(incarceration, fine or both)
amount of fine, if applicable (civil or criminal cases)
months of incarceration, if applicable (criminal cases only)
appropriated budget for the Antitrust Division
appropriated budget for the FTC (can be broken down into salaries
and general work)
lack of violations in other industries may be just due to lack of information or tradeoff
in investigating cases and leads in another industry. Also, controlling for the number of
employees is important since fewer employees clearly means fewer cases can be prosecuted,
but such data currently is lacking; we will use budgets as a proxy for the time being.
4.1
Variables
Table 7 summarizes the variables collected in reading the DOJ and FTC court cases.
We use this data as metrics for investigating the degree of antitrust enforcement in the years
just prior to and during the Great Depression. Next we present hypotheses with respect to
each metric examined, and when possible, offer summaries of findings by Posner.
16
4.1.1
Length of each case
The length of each case is determined by the number of months between the initiation
and decision or executed remedy date of each case. We expect that the longer the cases,
the stricter the antitrust enforcement. However, many cases end with a consent decree
(agreement in civil cases) or nolo contendere (no contest plea in criminal cases). In such
cases, the government wins, but the case length likely is very short, since both entail out of
court settlements and thus no litigation. Therefore, the shorter the case length in which the
government loses indicates more lax enforcement. However, we examine how many cases
were settled and litigated. Posner (1970) finds that for the 59 DOJ cases between 1925
and 1929, 44 were settled within six months and 15 were litigated (25 per cent). For the
30 DOJ cases between 1930 and 1934, 20 were settled in six months and 10 were litigated
(33 per cent). Finally, for the 57 DOJ cases between 1935 and 1939, 21 were settled within
six months and 27 were litigated (47 per cent). The percentage of cases litigated appears
to increase, and pre-NIRA litigation appears lower than post-NIRA litigation, offering no
evidence for more lax enforcement in terms of efforts to try a case. With further analysis,
we can examine length for civil versus criminal cases and by industry to determine which
types of violations and cases required or expended more effort of the DOJ.
Table 8, replicated from Posner (1970), provides a breakdown in years of five of DOJ
cases by civil and criminal, indicated the number of consent judgments, and provides the
number of cases over lengths of time. We see that in early years, more cases were settled
within six months and more consent decrees were issued, indicating settlement agreements
with the DOJ. During the Hoover administration of tough enforcement and the beginning
for most of the NIRA, at least four cases last over two years. While Posner’s examination
is useful, a more detailed analysis of length by year and interacted with other variables will
reveal more information about enforcement during this period.
17
Table 8: DOJ cases: length and number (replicated from Posner (1970))
DOJ variables
1925-1929 1930-1934 1935-1939
Civil cases (in mo.)
31
40
62
Criminal cases (in mo.)
32
51
26
No. 12 mo. or less (civil)
No. 13-24 mo. (civil)
1
3
No. 25-36 mo. (civil)
3
2
No. 36-48 mo. (civil)
4
1
No. 49-60 mo. (civil)
1
No. 61-72 mo. (civil)
1
1
1
No. 73-84 mo. (civil)
No. 85-96 mo. (civil)
2
No. 97-124 mo. (civil)
1
No. 125 mo. or more (civil)
4
No. cases settled w/in 6 mo.
44
20
21
No. Consent judgments (civil)
33
12
17
4.1.2
Defendant type
While we often do not have details of every defendant, the number of and types of
defendants offer insight into the strictness of the DOJ and FTC in which parties they deem
violators. Evidence of individuals, rather than just the firm, being prosecuted might indicate
stricter antitrust enforcement. A more intense antitrust enforce would seem to go after not
just a firm, but individuals within a firm, as well, if such violation warrants individual
sanctions. Therefore, like Gallo, Dau-Schmidt, Craycraft, and Parker (2000) we determine
what type of entity the DOJ and FTC pursue. Becker and other theories of punishment
argues that firms are the more efficient violator to pursue in terms of deterrence and cost
because of the judgment proof problem with individuals and the greater likelihood a firm can
pay a fine, so that incentives of the firm are in fact affected, as well as costs of imprisonment
are avoided. Others support remedies involving specific individuals in a firm to increase
incentives by firm employees to adhere to antitrust policies.
18
4.1.3
Industry
We break down the good or service for each case by the Standard Industrial Classification (SIC) four-digit codes, as well as the division. Ten divisions (A-J) make up the SIC
groupings, then the hierarchy of each four-digit code is broken down in major groups (first
two digits), industry group (third digit) and finally, the good or service itself is indicated by
the fourth digit. We break down each good and service to compare industries and general
types of goods/services with those for which participated in the NIRA.
Clearly many large industries were favored by the NIRA, and we want to understand
if these industries also were favored in non-NIRA allowed anticompetitive behavior, reflected by fewer antitrust cases in these industries, or whether regulators focused less on
the industry and more an specific violations not allowed under the NIRA. Additionally, as
mentioned above, evidence suggests some industries continued to follow their industry codes
post-NIRA, in which case such behavior would violate antitrust laws. If we see few antitrust
cases in industries known to continue following industry codes of collusive behavior (and
the specific behaviors in those codes not being prosecuted), then we have some evidence of
lax antitrust enforcement.
4.1.4
Alleged violation
We categorize six types of antitrust violations, one of which is a violation for threatening behavior (which can lead to criminal prosecution).
Between these seven types
of violations, we have 29 total possible violations (assigned a value 0-28).
These 29
violations were categorized in part by the violations considered in Posner (1970) and
Gallo, Dau-Schmidt, Craycraft, and Parker (2000). We will investigate each violation as
well as determine the frequency of each type of violation to determine the focus of antitrust
authorities. We also will combine this information with the NIRA codes to determine if we
find a decline in cases for specific violations and if that decline correlates with industries
and the particular codes of collusion allowed by the government, whether informally prior to
the NIRA and formally during the two years of the NIRA. As indicated above, post-NIRA,
19
under a hypothesis of strict antitrust enforcement, we expect an increase in prosecutions
for violations that were allowed by the NIRA, particularly in those industries that openly
continue to adhere to their codes. Table 9 outlines the 29 violations.
4.1.5
Court and/or Location
By examining location and the court, we hope to understand if specific courts favored
one side or were more lenient (or harsher) for certain alleged violations.
4.1.6
Disposition, Winner, Sanction and Remedy
With respect to the type of pleas, we might see a decrease in the number of guilty pleas
if the penalties are higher (stricter enforcement) because defendants might want to avoid
harsh penalties. This is a theory presented by Snyder (1990) (page 439).
We also breakdown cases by civil and criminal. We expect criminal violations to be
extreme and hope to get a clear picture of what other antitrust violations are part of the
criminal cases, as criminal sanctions are stricter than civil sanction and can be an indicator
or tougher enforcement. During this period, the maximum statutory penalty for antitrust
violations under the Sherman Act was $5, 000 for firms and individuals, with a maximum
one year incarceration (misdemeanor) for individuals. We hypothesize that the closer to
these limits the regulator got, the stricter the antitrust enforcement.
We would like to investigate aspects of the data such as (i) violations and industries
enforced by regulators both during and outside the NIRA; (ii) violations and industries
enforced by the courts (wins/losses by violation) both during and outside the NIRA; (iii)
which violations were tried under criminal statutes; (iv) trends in remedies, fines and incarceration over time and by industry and violation; (v) types of defendants by violation
and industry; (vi) length of cases both during and outside the NIRA; and (vii) if specific
courts favor regulators.
20
Table 9: Alleged Violations of Antitrust Law
Category
0 - Violence & threats (verbal or
physical) including bullying
Horizontal (per se) restraints
Monopolization
Exclusionary practices
Vertical restraints
Violation
1 - price fixing or agreement to maintain fixed min.
prices
2 - colluding on something other than price
3 - fixed output levels (production or sales quota)
4 - trade association or equivalent
5 - policing, fines, audits
6 - territory allocation schemes
7 - customer allocation schemes
8 - bid-rigging with government as a buyer
9 - other bid-rigging
10 - single-firm monopolies
11 - single-firm patents
12 - multiple-firm monopolies
13 - multiple firm patents
14 - cases with dissolution or significant divestiture
15 - price discrimination
16 - boycott
17 - reciprocity
18 - tying arrangements
19 - misuse of patents or threatening patent action
20 - sabotaging competitors
21 - exclusive dealing
22 - single-firm RPM
23 - multiple-firm RPM
24 - restrictive requirements on franchisers or dealers
- something other than RPM
25 - Horizontal merger violations
Non-horizontal merger violations
26 - product extension merger
27 - conglomerate merger
28 - vertical mergers
21
5
Proposed analysis
Beyond the basic statistical evaluation of antitrust cases between 1925-1939, we can
also consider what explains whether the United States (DOJ or FTC) wins an antitrust
case, looking at factors such as the industry, the violation, the Court, change in budget.
Using an event study, we also can examine the effect of the change in antitrust policy to
determine if the number of cases statistically change during the NIRA compared to nonevent
periods before and after the NIRA. Finally, we hope to combine our case data with industry
code data to determine how the DOJ and FTC changed antitrust enforcement in response
to the NIRA codes for specific industries and for specific (anticompetitive) behavior. For
example, did regulators shift away to industries that not sign industry codes, or did they
merely focus more on specific violations not covered by industry codes, but favored no
particular industry? We can break down all of these analyses by civil and criminal cases,
or include such as an explanatory variable.
6
Conclusion
We offer an empirical study of antitrust enforcement by the Department of Justice
(DOJ) and Federal Trade Commission (FTC) during the New Deal. The goal of this
research is to address arguments that antitrust policies during the Great Depression were
harmfully lax or even “suspended”. These arguments stem from the National Industrial
Recovery Act (NIRA), lasting from 1933 to 1935, that allowed industries to collude in
specific ways under specific rules. Therefore, on the surface, the NIRA indicates antitrust
policies were nonexistent during this period. Other non-legislative antitrust actions by
regulators and the courts also affected antitrust policy. However, changes in antitrust policy
do not imply no enforcement of competition law during this period. We seek to resolve this
growing assumption in the literature by creating a detailed dataset, and then carefully
examining, federal antitrust cases from 1925-1939. Resolving this growing assumption of
nonexistent antitrust enforcement is important because some base conclusions on the extent
22
of the Great Depression and output on an assumption of suspended antitrust policy. Such
policy implications during this period have been paralleled to potential policy changes in
today’s economic environment. Our analysis provides a detailed look at the industries
and alleged violations investigated and prosecuted by the DOJ and FTC, as well as other
non-legislative antitrust policies in place, the size of the regulatory agencies, the resulting
remedies, and length of cases. We examine the years 1925-1939 due to vacillating antitrust
enforcement perspectives of the government between these years, as well as to compare
to periods outside of the NIRA. Complementing our case data with specifics of the NIRA
Codes of Fair Competition (rules of collusion for each industry), as well as data on other nonlegislative antitrust policy, we determine factors that explain antitrust enforcement, thereby
providing a clearer picture of exactly how antitrust enforcement responded to changes in
antitrust policy during this fragile period. We still are entering data and further analysis
will continue in the ways indicated above.
23
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