Your comment depends on the interpretation of the word 'free' in 'free market', and it's why many economists would argue that anti-cartel legislation that makes actions like this illegal is necessary to protect the free market.

ie. A market can become less free through bad government regulation which limits competition, but it can also become less free through the collusion of some market participants in a trust which limits the ability of other participants to truck barter and trade.

How did you let the market run free? There were regulations to prevent this. If anything, this is an example of their ineffectiveness.

Do regulations really exist to prevent crime, or to threaten punishment when it occurs?

Arguably, neither a free market or a regulated market can prevent any criminal activity.

Both. By raising the cost (punishment * chance of getting caught), you prevent it. Sure, many of those who flaunt the law have to learn the hard way, but there's no question raising either or both of those inputs will reduce the overall amount of crime.

I don't believe the death penalty does much to deter murder or is cost-effective (although I still consider it just in most circumstances), because the perpetrator often doesn't value their own life that much. When you have to live with the punishment, I believe it is a deterrent for most, analogous to the prospect of living with a lot of debt: the price of stuff affects our behavior.

That's irrelevant; clearly some people change their behavior due to the risk of breaking the law. However, unenforced rules (ie driving 56mph in a 55mph zone) are generally ignored.