Active and Passive Institutional Investors and New Antitrust Challenges: Is EU Competition Law Ready?

Antitrust Chronicle, Spring 2017, Volume 1, Number 3 - Competition Policy International: "Index Funds – A New Antitrust Frontier?"

8 Pages Posted: 3 Jul 2017

See all articles by Marco Claudio Corradi

Marco Claudio Corradi

ESSEC Business School

Anna Tzanaki

Lund University - Faculty of Law; University College London - Centre for Law, Economics and Society

Date Written: 2017

Abstract

Has the antitrust arsenal run out of novel theories or weapons? Think again. Recent scholarship has come to challenge conventional wisdom with the latest target of antitrust imagination being institutional investors, including diversified index funds. New economic research suggests that common ownership of competing industrial firms by large institutional investors leads to potential anticompetitive effects in the form of increased concentration and prices that may be captured by a new generalized HHI measure and have thus far remained undetected under traditional tools and analysis. A number of mechanisms is said to support these anticompetitive effects such as voting, private engagement and compensation contracts.

Reactions have been rapid and widespread. Antitrust enforcers started looking closer at certain industries as well as investigating the scope of their existing powers, while policy makers considered that this might be an area prone to future regulation. In the meantime, legal scholars have come forward with solutions to the purported antitrust problem.

This essay aims to disentangle the complex issues surrounding common ownership by institutional investors, and suggest a holistic approach that brings together the corporate with the competition law aspects of the problem. Accordingly, the analysis first sheds light on the corporate governance dimensions (Part II). Next, it outlines the theories of harms that correspond to the distinct forms and levels of shareholder activism or passivity (Part III). It then revisits the existing legal and policy antitrust framework and compares the EU versus the U.S. experience (Part IV). Finally, it wraps up the discussion with some concluding remarks on the EU competition law outlook (Part V).

Keywords: antitrust, horizontal shareholding, common ownership, institutional investors, index funds, partial share ownership, stock acquisition, competition policy, merger control, corporate governance

JEL Classification: D21, D43, G20, G23, G28, G32, G34, K21, K22, L10, L13, L21, L22, L40, L41, O16

Suggested Citation

Corradi, Marco Claudio and Tzanaki, Anna, Active and Passive Institutional Investors and New Antitrust Challenges: Is EU Competition Law Ready? (2017). Antitrust Chronicle, Spring 2017, Volume 1, Number 3 - Competition Policy International: "Index Funds – A New Antitrust Frontier?", Available at SSRN: https://ssrn.com/abstract=2996518

Marco Claudio Corradi

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

Anna Tzanaki (Contact Author)

Lund University - Faculty of Law ( email )

Lilla Gråbrödersgatan 4
Lund, 222 22
Sweden

University College London - Centre for Law, Economics and Society ( email )

Bentham House
Endsleigh Gardens
London, WC1H 0EG
United Kingdom

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