Does Common Ownership Explain Higher Oligopolistic Profits?

20 Pages Posted: 15 Jun 2020 Last revised: 12 Nov 2020

See all articles by Edward B. Rock

Edward B. Rock

New York University School of Law; European Corporate Governance Institute

Daniel L. Rubinfeld

University of California at Berkeley - School of Law; National Bureau of Economic Research (NBER); NYU Law School

Date Written: October 29, 2020

Abstract

A stylized fact that lurks in the background of the recent literature on common ownership is the parallel increase in the profitability of oligopolistic industries and common ownership. Some have argued that the growth in common ownership has caused the increase in oligopoly profits and have proposed a variety of policy responses. This paper briefly reviews the available evidence and finds it unconvincing. It then provides an overview of the evidence that concentration and profitability have increased, considers alternative explanations, and suggests that the emergence of “superstar” firms -- and not the growth in common ownership – could be a fundamental driver of the parallel increase in concentration and profitability.

Keywords: common ownership, corporate governance, Index funds, passive investing, active funds, institutional investors, coordinated effects, superstar firms, oligopoly profits

JEL Classification: K21, K22, L4, L40, L41

Suggested Citation

Rock, Edward B. and Rubinfeld, Daniel L., Does Common Ownership Explain Higher Oligopolistic Profits? (October 29, 2020). NYU Law and Economics Research Paper No. 20-18, European Corporate Governance Institute - Law Working Paper No. 528/2020, Available at SSRN: https://ssrn.com/abstract=3627474 or http://dx.doi.org/10.2139/ssrn.3627474

Edward B. Rock (Contact Author)

New York University School of Law ( email )

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European Corporate Governance Institute ( email )

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Daniel L. Rubinfeld

University of California at Berkeley - School of Law ( email )

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(510) 642-1959 (Phone)
(510) 642-3767 (Fax)

HOME PAGE: http://www.law.berkeley.edu/faculty/rubinfeldd

National Bureau of Economic Research (NBER)

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