Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry

80 Pages Posted: 2 Nov 2017 Last revised: 26 Jun 2020

See all articles by Patrick J. Dennis

Patrick J. Dennis

University of Virginia - McIntire School of Commerce

Kristopher Gerardi

Federal Reserve Bank of Atlanta

Carola Schenone

University of Virginia - McIntire School

Multiple version iconThere are 2 versions of this paper

Date Written: June 25, 2020

Abstract

Institutions often own equity in multiple firms that compete in the same product market. These institutional ``common owners" may induce or mandate anti-competitive pricing behavior among the product market rivals. This paper evaluates prior evidence of such behavior between competing airlines. The measure of common ownership is a function of each airline's market share, as well as the cash flow and control rights held by the institutions that own the airlines competing in the same market. Using placebo tests, we show that the documented positive correlation between common ownership and ticket prices stems from the market share component of the common ownership measure, and not the ownership and control components. We examine other econometric and data measurement issues and show that the previously documented results are fragile to reasonable alternative mappings of equity votes into control rights, as well as alternative assumptions about equity holders' ownership and control during bankruptcy. Our results obviate the need for policy aimed at restricting the holdings of institutional managers.

Keywords: Common Owners, Competition, Airlines

JEL Classification: G30, G34, G32, G38

Suggested Citation

Dennis, Patrick J. and Gerardi, Kristopher S. and Schenone, Carola, Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry (June 25, 2020). Available at SSRN: https://ssrn.com/abstract=3063465 or http://dx.doi.org/10.2139/ssrn.3063465

Patrick J. Dennis

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
804-924-4050 (Phone)

Kristopher S. Gerardi

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-498-8561 (Phone)

HOME PAGE: http://sites.google.com/site/kristophergerardishomepage/

Carola Schenone (Contact Author)

University of Virginia - McIntire School ( email )

Rouss and Robertson Halls
125 Ruppel Drive
Charlottesville, VA 22903
United States
434-924-4184 (Phone)

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