Kennedy, O'Brien, Song, and Waehrer (2017) replicate the panel results of Azar, Schmalz and Tecu (forthcoming), but argue on theoretical grounds that the estimates should not be interpreted as anti-competitive effects of common ownership. They then develop and estimate alternative models and find no significant positive effects of common ownership on airline ticket prices. This note points out features of their empirical analysis that cast doubt on the reliability of their method and results. Their conclusion that the data do not support AST's interpretation seems unwarranted.

Recent empirical research purports to show that common ownership by institutional investors harms competition even when all financial holdings are minority interests. This research has received a great deal of attention, leading to both calls for and actual changes in antitrust policy. This paper examines the research on this subject to date and finds that its conclusions regarding the effects of minority shareholdings on competition are not well established. Without prejudging what more rigorous empirical work might show, we conclude that researchers and policy authorities are getting well ahead of themselves in drawing policy conclusions from the research to date. The theory of partial ownership does not yield a specific relationship between price and the MHHI. In addition, the key explanatory variable in the emerging research - the MHHI - is an endogenous measure of concentration that depends on both common ownership and market shares. Factors other than common ownership affect both price and the MHHI, so the relationship between price and the MHHI need not reflect the relationship between price and common ownership. Thus, regressions of price on the MHHI are likely to show a relationship even if common ownership has no actual causal effect on price. The instrumental variable approaches employed in this literature are not sufficient to remedy this issue. We explain these points with reference to the economic theory of partial ownership and suggest avenues for further research.

If managers maximize the payoffs of their shareholders rather than firm profits, then it may be anticompetitive for a shareholder to own competing firms. This is because a manager?s objective function may place weight on profits of competitors who are held by the same shareholder. Recent research found evidence that common ownership by diversified institutional investors is anticompetitive by showing that prices in the airline and banking industries are related to generalized versions of the Herfindahl-Hirschman Index (HHI) that account for common ownership. In this paper we propose an alternative approach to estimating the competitive effects of common ownership that relates prices and quantities directly to the weights that such managers may be placing on the profits of their rivals. We argue that this approach has several advantages. First, the approach does not inherit the endogeneity problems of HHI regressions, which arise because HHI measures are functions of quantities. Second, because we treat quantities as outcomes we can look for competitive effects of common ownership on both prices and quantities. Third, while concentration measures vary only at the market-time level, the profit weights also vary at the firm level, which allows us to control for a richer set of unobservables. We apply this approach to data from the banking industry. Our empirical findings are mixed, though they?re preliminary as we investigate irregularities in ownership data (Anderson and Brockman (2016)). The sign of the estimated effect is sensitive to the specification. Economically, estimated effects on prices and quantities are fairly small.

American markets, once a model for the world, are giving up on competition. Thomas Philippon blames the unchecked efforts of corporate lobbyists. Instead of earning profits by investing and innovating, powerful firms use political pressure to secure their advantages. The result is less efficient markets, leading to higher prices and lower wages.

Institutional investors often own significant equity in firms that compete in the same product market. These "common owners" may have an incentive to coordinate the actions of firms that would otherwise be competing rivals, leading to anti-competitive pricing. This paper uses data on airline ticket prices to test whether common owners induce anti-competitive pricing behavior. We find little evidence to support such a hypothesis, and show that the positive relationship between average ticket prices and a commonly used measure of common ownership previously documented in the literature is generated by the endogenous market share component, rather than the ownership component, of the measure.

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.

The share of stocks beneficially owned by institutional investors has increased substantially over the last three decades. Together with a high and increasing level of concentration in the asset management industry, this trend implies that a small number of institutional investors now constitute the largest shareholders of most publicly traded firms in the U.S. and in other developed economies. When the same set of investors owns most firms, they are bound to own several firms in the same industry. Such overlapping ownership interests among competitors, or “common ownership,” may imply a reduction in firms' incentives to compete, compared to a situation in which competitors are controlled by separate sets of investors, and may thus create antitrust risks. Recent empirical research shows evidence for such anti-competitive effects of common ownership. These findings have since ignited a debate on the antitrust risk posed by institutional investors, its legal implications and potential solutions. This article first illustrates the extent of present-day common ownership and discusses the economic logic of why common ownership leads to reduced incentives to compete and may cause anti-competitive outcomes. We then review some of the empirical evidence to date, discuss critiques of the same and explain the conceptual problems inherent with all potential policy solutions. The legal debate around these findings is discussed by a fast-growing literature, including contributions by other authors in this issue.