Common Sense About Common Ownership

Abstract

Some scholars have argued that the phenomenon known as common ownership, which refers to an investor's simultaneous ownership of small stockholdings in several competing companies, is anticompetitive and prohibited by the U.S. antitrust laws. These proponents target in particular large investment managers, such as those that administer actively managed and passive index mutual funds owned by individual investors, and call for the divestiture of trillions of dollars of equities.

We believe the argument for antitrust enforcement against common ownership is misguided. First, proponents conflate management by investment managers and economic ownership by individual account holders and therefore incorrectly attribute allegedly anticompetitive conduct to the investment managers. Second, proponents substantially overstate the validity and strength of the existing empirical work purporting to show common ownership causes anticompetitive harm. Third, proponents overstate their legal case, both by relying upon inapplicable cross ownership cases and by stretching the holdings of those cases. Shorn of puffery, proponents rely on little more than the "plain meaning" of the statutes and the hotly contested empirical results. Fourth, at bottom proponents concerns are with either conscious parallelism, which is not illegal, or anticompetitive conduct that, if proven, could be addressed using established antitrust doctrines applicable to hub-and-spoke conspiracies and the anticompetitive exchange of information.

Keywords: Antitrust, stock, common ownership, anticompetitive, conscious parallelism

JEL Classification: D21, D43, G20, G34, K21, K22, L10, L13, L22, L40, L41