‘Private v public sanctions: the case of cartels’

On Friday 10th July, we rounded off our Summer Seminar Series in style with the dream pairing of Franco Mariuzzo (CCP and ECO) and Peter Ormosi (CCP and NBS) presenting ‘Private v public sanctions: the case of cartels‘, a joint project with Antonios Karatzas (Warwick). An abstract for their presentation can be found below.


Economics literature on the relationship between private and public sanctions has led to a consensus that private (market-based) sanctions can act as an important deterrent to corporate misbehaviour inasmuch as they internalise the social costs of these offences. On the other hand public sanctions are needed where the harm caused by the offence is not internalised (for example because the damaged party remains oblivious to the offence); in these cases the amount of the sanction should equal the un-internalised social cost. We provide further empirical evidence to this literature by looking at cartels, using a novel methodology that enables us to directly control for the magnitude of the private sanction in our model. This allows us to empirically study the substitutability between fines and reputation for firms that have been found guilty of cartel illegal conduct.

We measure reputation with a composite of the frequency of media exposure and the intensity of the media content. Media exposure is captured by a count of sources that document a firm’s illegal behaviour in the cartel and intensity is measured by a sentiment analysis of the text of the published news. We employ an event study technique over a sample of about 300 public companies that belong to about 100 cartels detected by the Competition Commission during the period 1990-2012. Our results confirm that public and private sanctions are not perfect substitutes, and that the intensity of the media content has a larger punishment effect than exposure; we call this “quality for quantity” effect. In addition we find that the effect of reputation is larger for firms that belong to cartels with non-atomistic customers.

This is the final seminar of the Summer but we will return in September for another excellent series of interdisciplinary presentations on competition policy and regulation. We will be announcing the programme for the Autumn Seminar Series in due course and you can keep up-to-date by visiting our designated seminar pages on the CCP website.

‘In Gov We Trust: Voluntary Compliance in Networked Investment Games’

Only two seminars remain in this semester’s CCP Seminar Series but they have most certainly been worth the wait. This week’s penultimate seminar on Friday 3rd July sees Natalia Borzino (CCP and ECO) presenting her research entitled ‘In Gov We Trust: Voluntary Compliance in Networked Investment Games‘, which she has undertaken with Enrique Fatas (CCP & UEA) and Emmanuel Peterle (University of Goettingen). Natalia is a PhD Researcher and Associate Tutor in the School of Economics at UEA. In addition to CCP, Natalia is also a member of the Centre for Behavioural and Experimental Social Science (CBESS) at UES. An abstract for her paper can be found below.


We conduct a controlled laboratory experiment to investigate trust and trustworthiness in a networked investment game in which two senders interact with a receiver. We investigate to what extent senders and receivers comply with an exogenous and non-binding recommendation. We also manipulate the level of information available to senders regarding receiver’s behaviour in the network. We compare a baseline treatment in which senders are only informed about the actions and outcomes of their own investment games to two information treatments. In the reputation treatment, senders receive ex ante information regarding the average amount returned by the receiver in the previous period. In the transparency treatment, each sender receives ex post additional information regarding the returning decision of the receiver to the other sender in the network.

Across all treatments and for both senders and receivers, the non-binding rule has a significant and positive impact on individual decisions. Providing senders with additional information regarding receiver’s behaviour affects trust at the individual level, but leads to mixed results at the aggregate level. Our findings suggest that reputation building, as well as allowing for social comparison could be efficient ways for receivers to improve trust within networks.

The seminar takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03.