Anticompetitive Effects of Common Ownership

By Jose Azar, Martin C. Schmalz, Isabel Tecu. Journal of Finance, 2018

788 citations recorded by the source corpus.

Many natural competitors are jointly held by a small set of large institutional investors. In the US airline industry, taking common ownership into account implies increases in market concentration that are 10 times larger than what is “presumed likely to enhance market power” by antitrust authorities. Within-route changes in common ownership robustly correlate with route-level changes in ticket prices, even when we only use variation in ownership due to the combination of two large asset managers. We conclude that a hidden social cost – reduced product market competition – accompanies the private benefits of diversification and good governance.

Subfields: Accounting, Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/e5dc09ba2d59355e2f0cb08ef6176936660d8659

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Citations in the corpus

Do Index Funds Monitor? (2021, background): “Given the dramatic increase in ownership by passively managed index funds, and since index funds are now the largest blockholders of many U.S. corporations (Azar et al. (2018)), studying their monitoring incentives is of fundamental importance (Edmans (2014)).”
Common Ownership, Competition, and Top Management Incentives (2016, methodology): “We measure common ownership concentration with the MHHI delta (henceforth MHHID), proposed by O’Brien and Salop (2000), and previously implemented empirically by Azar et al. (2015). The approach assumes that firms maximize a weighted sum of the portfolio profits accruing to their shareholders.”
The effects of financial reporting and disclosure on corporate investment: A review (2019, background): “55 In fact, a rapidly growing body of research finds that when a firm’s investors simultaneously own significant stakes in its competitors, managers are incentivized to reduce investment, increase disclosure and become less competitive (e.g., He and Huang, 2017; Azar et al., 2018; Park et al., 2019)”
Institutional Cross-Ownership and Corporate Strategy: The Case of Mergers and Acquisitions (2018, background): “Azar et al. (2017) find that common ownership affects U.S. airline companies’ flight ticket pricing strategies.”