Varieties and Mechanisms of Common Ownership: A Calibration Exercise for Competition Policy

Abstract

Minority shareholdings have been on the regulatory agenda of competition authorities for some time. Recent empirical studies, however, draw attention to a new, thought provoking theory of harm: common ownership by institutional investors holding small, parallel equity positions in several competing firms within concentrated industries. While critical voices abound, EU and U.S. antitrust agencies closely follow these developments indicating an appetite to act. This article connects the common ownership debate to merger control and explores: i) the aims and scope of legal control as regards partial acquisitions in different jurisdictions; ii) the nature of potential competition effects arising from passive minority shareholding; and iii) the plausibility of common owners’ anticompetitive strategies from a corporate governance perspective.

Drawing a distinction between “concentrated” and “diffuse” common ownership, it sheds light on the different supporting mechanisms and varying harm potential of each variety. “Passive influence” mechanisms characterizing “diffuse” common ownership may not only generate plausible and material competition concerns in given circumstances but present challenges for the effective jurisdictional and remedial design of merger law frameworks. Competition policy should stay current by explicitly recognizing these novel insights in enforcement practice and developing guidelines on how to treat common ownership cases in the future.

Keywords: Common ownership, horizontal shareholding, minority shareholding, passive investment, portfolio diversification, institutional investors, index funds, corporate governance, agency costs, theory of the firm, competition, antitrust, corporate law, competition law, comparative institutional analysis

JEL Classification: D21, D23, D43, D62, G11, G20, G23, G30, G32, G34, K21, K22, L10, L13, L21, L22, L40, L41, O16, P51