Ownership and Competition

44 Pages Posted: 29 Jan 2021 Last revised: 1 Feb 2021

See all articles by Alessio Piccolo

Alessio Piccolo

Indiana University - Kelley School of Business

Jan Schneemeier

Indiana University - Kelley School of Business - Department of Finance

Date Written: November 1, 2020

Abstract

We develop a model in which the ownership structure and the degree of competition of industry rivals are jointly determined. Competing more aggressively improves an individual firm's performance but has negative externalities for its peers. Two types of investors endogenously arise in equilibrium. Common owners, who acquire positions in all firms and decrease competition. Undiversified investors, who acquire a position in only one firm and increase competition. As financial markets become more efficient, common ownership increases and competition decreases, which can lead to a disconnect between stock market efficiency and welfare. We derive further testable implications for ownership structure, product market competition, and welfare.

Keywords: common ownership, competition, corporate governance, real effects of financial markets

JEL Classification: D82, D83, G34

Suggested Citation

Piccolo, Alessio and Schneemeier, Jan, Ownership and Competition (November 1, 2020). Available at SSRN: https://ssrn.com/abstract=3733795 or http://dx.doi.org/10.2139/ssrn.3733795

Alessio Piccolo

Indiana University - Kelley School of Business ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
+18123914734 (Phone)

HOME PAGE: http://https://kelley.iu.edu/faculty-research/faculty-directory/profile.cshtml?id=APICCOL

Jan Schneemeier (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1275 E 10th St
Bloomington, IN 47405
United States

HOME PAGE: http://www.jan-schneemeier.com

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