The current debate on the competitive risks of common ownership has focused on whether passive index investments soften competition among portfolio companies. However, even if one concedes, in arguendo, that this is the case, it remains unclear in what way this bears on the analysis of horizontal mergers between portfolio companies. The EU Commission in Dow/DuPont and Bayer/Monsanto has alleged that common ownership is "an element of context in the appreciation of any significant impediment to effective competition". In that respect we hypothesize that it should not be presumed that common ownership in itself increases anticompetitive effects of a merger between portfolio companies. Instead we posit that this depends on the facts of the case. The existence of common ownership might even mitigate post-merger unilateral effects if compared to the pre-merger counterfactual. We test our hypothesis on price competition as well as on innovation competition. Eventually, we map our conclusions onto the legal principles governing the burden of proof in merger cases.

The potentially anticompetitive effects of common ownership are being discussed controversially. While the US agencies still display reluctance, the Commission has already invoked common ownership has part of a theory of harm in Dow/DuPont and Bayer/Monsanto. In our paper we focus on how common ownership can bear on the application of price pressure indices in unilateral effects analysis of horizontal mergers between portfolio companies. We do not assess whether the underlying premise of common ownership to lead to an internalization of shareholders' expectations of high overall market returns is convincing. Rather, we hypothesize such common shareholder influence. Our main conclusion is that common ownership should still not be considered a general circumstantial factor indicating competitive harm with respect to post-merger price increases or effects on innovation competition. Rather, it calls for case-by-case analysis.

The empirical literature on the potential collusive effects of common-ownership relies heavily on financial institution mergers to make causal inferences. I find that more than 85% of newly-formed common-ownership relationships due to such financial institution mergers are no longer commonly-held by the acquiring institution during the post-merger period (with most being liquidated in the first quarter following the merger). Firms that are no longer commonly-held by the merged institution drive the anti-competitive results found in previous studies. The fact that portfolio firms are so quickly rebalanced casts doubt on the utility of financial institution mergers as a natural experiment. I also find evidence that portfolio rebalancing post-merger is driven by other factors, such as portfolio diversification or index tracking. Further, I find no significant positive risk-adjusted returns for a common-ownership based portfolio strategy, suggesting that investors do not make a profit from commonly-held stocks. Taken together, these findings suggest that empirical basis for claiming collusive effects of common-ownership is weaker than it appears and there is no strong evidence that provides a basis for policy concerns about institutional common-ownership.

With the growth of common ownership and investor engagement with portfolio firms, the possibility of adverse competitive effects of common ownership has become an important issue. To date, most of the focus has been on “unilateral” effects. In this Article, we shift the focus to the potential “coordinated” effects of common ownership and the appropriate antitrust treatment. After examining the ways in which a common owner could be a particularly effective cartel facilitator, we identify five scenarios, based on antitrust case law and enforcement experience, in which common ownership could plausibly increase the potential for coordinated conduct in concentrated markets. For each, we provide an economic analysis of the potential anticompetitive coordinated effects and we consider the appropriate legal treatment under Section 1 of the Sherman Act. The five scenarios are: Common Owners as Cartel Initiators; Common Owners as Trustworthy Conduits; a Common Compensation Structure as a Facilitating Practice; Common Owners as Brakes; and Common Owners as Vectors of Infection. We then turn to whether and how the anticompetitive potential for coordinated effects of common ownership might affect merger analysis under Section 7 of the Clayton Act or the EU Merger Regulation.

This incisive Research Handbook identifies and assesses the emerging trends in competition enforcement, investigating how such changes impact the enforcement approach of competition authorities and the behaviour of companies in an ever-evolving business and regulatory environment.

Examines the intersections between corporate and antitrust law, focusing on corporate interest, governance, and the financial links among companies.

The Handbook of the Economics of Corporate Governance, Volume One, covers all issues important to economists. It is organized around fundamental principles, whereas multidisciplinary books on corporate governance often concentrate on specific topics. Specific topics include Relevant Theory and Methods, Organizational Economic Models as They Pertain to Governance, Managerial Career Concerns, Assessment & Monitoring, and Signal Jamming, The Institutions and Practice of Governance, The Law and Economics of Governance, Takeovers, Buyouts, and the Market for Control, Executive Compensation, Dominant Shareholders, and more. Providing excellent overviews and summaries of extant research, this book presents advanced students in graduate programs with details and perspectives that other books overlook. Concentrates on underlying principles that change little, even as the empirical literature moves on Helps readers see corporate governance systems as interrelated or even intertwined external (country-level) and internal (firm-level) forces Reviews the methodological tools of the field (theory and empirical), the most relevant models, and the field’s substantive findings, all of which help point the way forward