The Competitive Effects of Common Ownership: Economic Foundations and Empirical Evidence

Abstract

A large fraction of US public stock is held by institutional investors that frequently hold shares in multiple firms in the same industry ("common ownership"). Concerns have been raised that common ownership might harm competition if it confers influence over important strategic decisions. Using data from the airline industry, we estimate the effects of common ownership on airline prices using price regressions and a structural oligopoly model consistent with the theory of partial ownership proposed in O'Brien and Salop (2000). Contrary to recent empirical research based on the same data, we find no evidence that common ownership raises airline prices.

Keywords: Price, concentration, common ownership, partial ownership, mergers

JEL Classification: D43, G23, G34, K21, L13, L41