The Strategies of Anticompetitive Common Ownership

74 Pages Posted: 30 Jul 2018 Last revised: 15 Apr 2020

See all articles by C. Scott Hemphill

C. Scott Hemphill

New York University School of Law

Marcel Kahan

New York University School of Law; European Corporate Governance Institute

Date Written: November 2, 2019

Abstract

Scholars and antitrust enforcers have raised concerns about anticompetitive effects that may arise when institutional investors hold substantial stakes in competing firms. Their concern rests on empirical evidence that such common concentrated ownership is associated with higher prices and lower output. This evidence sharply challenges both antitrust orthodoxy and corporate governance scholarship.

In this Article, we examine the causal mechanisms that might link common ownership to anticompetitive effects. We consider whether the current empirical evidence supports the existence of these mechanisms and whether institutional investors would plausibly employ them.

Our main conclusion is that most proposed mechanisms either lack significant empirical support or else are implausible. Notably, some widely discussed mechanisms—for example, cartel facilitation and passive failures to encourage competition among portfolio firms—are not empirically tested. Moreover, institutional investors’ incentives to increase portfolio value are weak, reducing the likelihood that these investors will pursue mechanisms that carry significant reputational or legal risks. We find, however, that a different mechanism, which we call "selective omission," is both consistent with the evidence and plausibly employed by institutional investors. Looking ahead, our analysis suggests paths for future research and provides a guide for further investigation into how common owners and firms may interact to produce anticompetitive effects.

Keywords: airlines, antitrust, common shareholding, common ownership, collusion, executive compensation, horizontal, HHI, institutional investors, MHHI, modified Herfindahl-Hirschman Index, shareholdings, Blackrock, Vanguard, State Street

JEL Classification: D21, D43, G11, G20, G23, G30, G32, G34, K21, K22, L10, L13, L21, L22, L40, L41

Suggested Citation

Hemphill, C. Scott and Kahan, Marcel, The Strategies of Anticompetitive Common Ownership (November 2, 2019). 129 Yale Law Journal 1392 (2020), NYU Law and Economics Research Paper No. 18-29, European Corporate Governance Institute (ECGI) - Law Working Paper No. 423/2018, Available at SSRN: https://ssrn.com/abstract=3210373 or http://dx.doi.org/10.2139/ssrn.3210373

C. Scott Hemphill (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Marcel Kahan

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-998-6268 (Phone)
212-995-4341 (Fax)

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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