Rethinking Common Ownership
105 Pages Posted: 15 Apr 2020
Date Written: March 16, 2020
A recent stream of literature debates the anti-competitive effects of common ownership based on product price data. I show that product prices alone are not informative about anti-competitive incentives created by common ownership when non-price attributes are also affected. Accounting for heterogeneity in firms’ technologies and incentive structure, I relate pricing and output policies to dollar market shares and profit margins for a sample of 11,000 US companies in the period of 1980 to 2013. I find that a one-standard-deviation increase in firms’ common ownership is associated with a reduction of their industry adjusted net profit margin of 1.8% to 3.9% and that a one-standard-deviation increase in rivals’ common ownership correlates with a decline in market share growth of up to 1.1% for non-common held firms. This evidence suggests that the asymmetry of real world common ownership leads to the formation of coalitions inside an industry and that commonly-held firms compete more aggressively, particularly towards their non-linked peers.
Keywords: Common Ownership, Product Market Competition, Corporate Governance, Industrial Organization, Welfare
JEL Classification: G34, G32, L13, L21, L41
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