Why Common Ownership Creates Antitrust Risks

CPI Antitrust Chronicle June 2017

8 Pages Posted: 20 Jun 2017

See all articles by José Azar

José Azar

University of Navarra, IESE Business School; CEPR

Martin C. Schmalz

University of Oxford - Finance; CEPR; CESifo; European Corporate Governance Institute (ECGI)

Isabel Tecu

Charles River Associates (CRA)

Date Written: June 16, 2017

Abstract

The share of stocks beneficially owned by institutional investors has increased substantially over the last three decades. Together with a high and increasing level of concentration in the asset management industry, this trend implies that a small number of institutional investors now constitute the largest shareholders of most publicly traded firms in the U.S. and in other developed economies. When the same set of investors owns most firms, they are bound to own several firms in the same industry. Such overlapping ownership interests among competitors, or “common ownership,” may imply a reduction in firms’ incentives to compete, compared to a situation in which competitors are controlled by separate sets of investors, and may thus create antitrust risks. Recent empirical research shows evidence for such anti-competitive effects of common ownership. These findings have since ignited a debate on the antitrust risk posed by institutional investors, its legal implications and potential solutions.

This article first illustrates the extent of present-day common ownership and discusses the economic logic of why common ownership leads to reduced incentives to compete and may cause anti-competitive outcomes. We then review some of the empirical evidence to date, discuss critiques of the same and explain the conceptual problems inherent with all potential policy solutions. The legal debate around these findings is discussed by a fast-growing literature, including contributions by other authors in this issue.

Keywords: Competition, Ownership, Pricing, Antitrust, Governance, Product Market

JEL Classification: L41, L10, G34

Suggested Citation

Azar, José and Schmalz, Martin C. and Tecu, Isabel, Why Common Ownership Creates Antitrust Risks (June 16, 2017). CPI Antitrust Chronicle June 2017. Available at SSRN: https://ssrn.com/abstract=2988778

José Azar

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

CEPR ( email )

London
United Kingdom

HOME PAGE: http://https://sites.google.com/site/joseazar/

Martin C. Schmalz (Contact Author)

University of Oxford - Finance ( email )

United States

CEPR ( email )

London
United Kingdom

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Isabel Tecu

Charles River Associates (CRA) ( email )

1201 F. St. NW
Ste. 700
Washington, DC 20004
United States

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