Conceptual Breakthroughs on Common Ownership and Competition: A Framework For Evaluating Policy

Abstract

This paper provides a framework for evaluating policy proposals aimed at invigorating competition and improving corporate governance amid a high and increasing level of common ownership of product market competitors. In particular, I propose that any effective proposal must have the effect of separating the level at which diversification is achieved from the level at which corporate governance is exercised. Several extant proposals are likely to have that effect. I also discuss conceptual breakthroughs on several issues that regulators and industry stakeholders considered necessary to address before changing policy, including (i) the joint recognition of vertical and horizontal common ownership links, (ii) agency problems, (iii) informational and organizational frictions, (iv) methods to infer causality, (v) a better understanding of how investors' portfolio choice depends on firms’ strategic interactions, and (vi) improving data quality.

Keywords: ownership, control, industry concentration, antitrust, competition, managerial incentives, corporate governance

JEL Classification: D21, D22, G10, G30, G32, G34, J41, K21, L10, L16, L21, L40, L41, L42