Common Ownership, Competition, and Top Management Incentives

Abstract

We present a mechanism based on managerial incentives through which common ownership
affects product market outcomes. Firm-level variation in common ownership causes varia-
tion in managerial incentives and productivity across firms, which leads to intra-industry
and intra-firm cross-market variation in prices, output, markups, and market shares that is
consistent with empirical evidence. The organizational structure of multiproduct firms and
the passivity of common owners determine whether higher prices under common ownership
result from higher costs or from higher markups. Using panel regressions and a difference-
in-differences design we document that managerial incentives are less performance-sensitive
in firms with more common ownership.

Keywords: Common ownership, competition, managerial incentives, productivity, corporate governance, antitrust

JEL Classification: M12, L13, J33, G32, D21, L21