The Common Ownership Trilemma

30 Pages Posted: 19 Sep 2019

See all articles by José Azar

José Azar

University of Navarra, IESE Business School; CEPR; ECGI

Date Written: September 10, 2019


This paper argues that it is impossible to achieve the following objectives simultaneously: (i) portfolio diversification, (ii) shareholder representation, and (iii) competition. In an economy where everyone holds the market portfolio, all the companies have the same shareholders. If, in addition, firms act in the interest of their shareholders (i.e., if the agency problem is solved), the equilibrium outcome is equivalent to an economy-wide monopoly. When managers are entrenched, however, the anti-competitive effects of common ownership are mitigated, yet they only disappear completely in the extreme case that managers are fully insulated from shareholder dissent. The trilemma highlights a fundamental systemic problem in stock market economies: their inherent tendency towards common ownership, and therefore away from market competition.

Keywords: Portfolio Diversification, Shareholder Value Maximization, Competition, Trilemma, Common Ownership

Suggested Citation

Azar, José, The Common Ownership Trilemma (September 10, 2019). Available at SSRN: or

José Azar (Contact Author)

University of Navarra, IESE Business School ( email )

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Barcelona, 08034

CEPR ( email )

United Kingdom

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ECGI ( email )

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