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Fines and reputational sanctions: The case of cartels

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  • Mariuzzo, Franco
  • Ormosi, Peter L
  • Majied, Zherou

Abstract

In this article, we revive an old debate in the law and economics literature: the relative role of public and reputational sanctions in deterring misconduct. We propose an empirical framework, which accounts for public sanctions (in our case cartel fines) and a more direct measure of reputational sanctions, harnessing recent developments in opinion mining. We use the intensity and the sentiment of media exposure of misconduct as a measure of reputational effect and thus approximation of the reputational sanction. As a demonstration, we combine an event study approach, sentiment analysis, and econometric techniques on a sample of 339 listed cartel member firms, prosecuted by the European Commission between 1992 and 2015. Our results offer evidence that in the context of cartels, public and reputational sanctions act as substitutes: where there is a reputational penalty, increasing this penalty reduces the effect of the public sanction. One the other hand, in the absence of a reputational punishment, the effect of the cartel fine steps in.

Suggested Citation

  • Mariuzzo, Franco & Ormosi, Peter L & Majied, Zherou, 2020. "Fines and reputational sanctions: The case of cartels," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:indorg:v:69:y:2020:i:c:s0167718720300060
    DOI: 10.1016/j.ijindorg.2020.102584
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    2. Pan, Junyu & Du, Lizhao & Wu, Haitao & Liu, Xiaoqian, 2024. "Does environmental law enforcement supervision improve corporate carbon reduction performance? Evidence from environmental protection interview," Energy Economics, Elsevier, vol. 132(C).
    3. Yannis Katsoulacos & Evgenia Motchenkova & David Ulph, 2023. "Measuring the effectiveness of anti‐cartel interventions in the shadow of recidivism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2393-2407, June.
    4. Rita Rodríguez‐Arrojo & Manuel Luna & Camilo J. Vázquez‐Ordás & Myriam García‐Olalla, 2024. "Mapping research on corporate misconduct in banking: Lessons from literature on preventive and punitive actions," Global Policy, London School of Economics and Political Science, vol. 15(S1), pages 62-75, March.
    5. Aditya Bhattacharjea & Oindrila De, 2021. "India’s Cartel Penalty Practices, Optimal Restitution and Deterrence," IEG Working Papers 424, Institute of Economic Growth.

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    More about this item

    Keywords

    Cartels; Event study; Public sanctions; Reputational sanctions; Sentiment analysis;
    All these keywords.

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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