The Competitive Effects of Common Ownership: We Know Less than We Think

45 Pages Posted: 24 Feb 2017

See all articles by Daniel P. O'Brien

Daniel P. O'Brien

Compass Lexecon

Keith Waehrer

Bates White Economic Consulting

Date Written: February 23, 2017

Abstract

Recent empirical research purports to show that common ownership by institutional investors harms competition even when all financial holdings are minority interests. This research has received a great deal of attention, leading to both calls for and actual changes in antitrust policy. This paper examines the research on this subject to date and finds that its conclusions regarding the effects of minority shareholdings on competition are not well established. Without prejudging what more rigorous empirical work might show, we conclude that researchers and policy authorities are getting well ahead of themselves in drawing policy conclusions from the research to date. The theory of partial ownership does not yield a specific relationship between price and the MHHI. In addition, the key explanatory variable in the emerging research – the MHHI – is an endogenous measure of concentration that depends on both common ownership and market shares. Factors other than common ownership affect both price and the MHHI, so the relationship between price and the MHHI need not reflect the relationship between price and common ownership. Thus, regressions of price on the MHHI are likely to show a relationship even if common ownership has no actual causal effect on price. The instrumental variable approaches employed in this literature are not sufficient to remedy this issue. We explain these points with reference to the economic theory of partial ownership and suggest avenues for further research.

Keywords: Common Ownership, Antitrust, Mergers, Partial Acquisitions, Corporate Governance

JEL Classification: D43, G23, G34, K21, L13, L41

Suggested Citation

O'Brien, Daniel P. and Waehrer, Keith, The Competitive Effects of Common Ownership: We Know Less than We Think (February 23, 2017). Available at SSRN: https://ssrn.com/abstract=2922677 or http://dx.doi.org/10.2139/ssrn.2922677

Daniel P. O'Brien (Contact Author)

Compass Lexecon ( email )

555 12th Street NW
Washington, DC 20004
United States

Keith Waehrer

Bates White Economic Consulting ( email )

1300 I Street NW
Washington, DC 20005
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1,025
rank
19,239
Abstract Views
3,932
PlumX