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Working Paper 18-6 v2 (updated January 2019)

Public and Private Sanctions: The case of cartels

AUTHORS: Franco Mariuzzo, Peter L. Ormosi, Antonios Karatzas, Zherou Majied

ABSTRACT: In this article, we revive an old debate in the law and economics literature: the relative role of public and private (market-based) sanctions in deterring misconduct. We harness recent developments in opinion mining to offer a novel framework, which accounts for public sanctions and a more direct measure of private sanctions. We propose using the intensity and the sentiment of media exposure of misconduct as a measure of reputational effect and thus an approximation of the private sanction. As a demonstration, we combine event study techniques, sentiment analysis, and classic econometrics on a sample of 339 listed companies belonging to 150 cartels prosecuted by the European Commission between 1992 and 2015. Our main finding is that in the context of cartels, public and private sanctions act as complements, but only if the cartel directly affects atomistic customers. In other cartels, we found no consistent relationship between public and our measure of private sanctions.

CITATION: Mariuzzo, F, Ormosi, P, Karatzas, A, & Majied, Z (2018) "Public and Private Sanctions: The case of cartels"

Working Paper 18-6 v2

Policy Brief 18-6 v2

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