Can Institutional Investors Soften Downstream Market Competition?

CPI Chronicle (June 2017)

14 Pages Posted: 28 Jun 2017

See all articles by John Woodbury

John Woodbury

Charles River Associates (CRA)

Date Written: June 05, 2017

Abstract

Recently, a number of papers have noted the dramatic increase in the extent to which institutional investors account for the ownership of publicly-traded stock, including holding ownership stakes in multiple market rivals. This change, in turn, has raised the intriguing or disturbing possibility that large institutional investors have used their influence to discourage aggressive rivalry among competitors. Indeed, two papers have developed evidence of such reduced rivalry in the airline and banking industries. If generally true, this evidence could lead to a radical reset of antitrust enforcement policy. This paper considers the original conclusions of these two papers and reviews the potential conceptual and empirical flaws in the analysis. While the evidence is still too sparse to justify antitrust action on this front, there can be little doubt that more research should be pursued to further validate (or not) the effect of institutional investors on market rivalry (and so prices). If so validated, then antitrust policy may well need to hit the "reset" button.

Keywords: institutional investors, common ownership, mergers, antitrust

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

Suggested Citation

Woodbury, John, Can Institutional Investors Soften Downstream Market Competition? (June 05, 2017). CPI Chronicle (June 2017), Available at SSRN: https://ssrn.com/abstract=2993433

John Woodbury (Contact Author)

Charles River Associates (CRA) ( email )

United States

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