Mutual Fund Market Structure and Company Fee Competition: Theory and Evidence

Abstract

We investigate whether competition between the fund companies that offer mutual funds constrains individual fund fees. We document that a substantial fraction of individual fund fee variation is explained by company-wide components. Moreover, we show using SEC prospectus download data that company-level attributes influence investors' consideration of companies. We connect these facts with a model of fee competition between co-considered fund companies, characterising the competitive landscape and associated equilibrium fees. Calibrating the model, we derive a testable prediction for competitively constrained fees. The prediction successfully explains cross-sectional variation in company-level average fees, identifying the influence of company competition on fees.

Keywords: Competition Network, Fee Dispersion, EDGAR, Consideration, Differentiation

JEL Classification: G20, D40, G11, D12, L10