Public and Reputational Sanctions: The Case of Cartels

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 offer a novel framework, which accounts for public sanctions and a more direct measure of private 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 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 cartel member firms, prosecuted by the European Commission between 1992 and 2015. We offer evidence that in the context of cartels, public and private sanctions act as substitutes.