Common Ownership and Mergers between Portfolio Companies

Abstract

The current debate on the competitive risks of common ownership has focused on whether passive index investments soften competition among portfolio companies. However, even if one concedes, in arguendo, that this is the case, it remains unclear in what way this bears on the analysis of horizontal mergers between portfolio companies. The EU Commission in Dow/DuPont and Bayer/Monsanto has alleged that common ownership is “an element of context in the appreciation of any significant impediment to effective competition”. In that respect we hypothesize that it should not be presumed that common ownership in itself increases anticompetitive effects of a merger between portfolio companies. Instead we posit that this depends on the facts of the case. The existence of common ownership might even mitigate post-merger unilateral effects if compared to the pre-merger counterfactual. We test our hypothesis on price competition as well as on innovation competition. Eventually, we map our conclusions onto the legal principles governing the burden of proof in merger cases.

Keywords: common ownership, Herfindahl-Hirschman Index, horizontal effects, innovation competition, merger control, unilateral effects

JEL Classification: L21, L22, L41