The common ownership hypothesis suggests that when large investors own shares in more than one firm within the same industry, those firms may have reduced incentives to compete. Firms can soften competition by raising prices, reducing investment, innovating less, or limiting entry into new markets. Empirical contributions document the growing importance of common ownership and provide evidence to support the theory. Prominent antitrust law scholars whose work previously featured on this forum (Elhauge, Scott Morton & Hovenkamp, Hemphill & Kahan, claim that common ownership “has stimulated a major rethinking of antitrust enforcement.” Indeed, the Department of Justice, the Federal Trade Commission, the European Commission, and the OECD have all acknowledged concerns about the anticompetitive effects of common ownership and have even relied on the theory and evidence of common ownership in major merger cases.

But because managers rather than investors control firm operations and because managers may not know the extent of their main investors’ shareholdings in other firms, skepticism that common ownership affects product market outcomes may be warranted. In particular, skeptics note the lack of a clear mechanism that recognizes these agency frictions and informational constraints. This has fueled a vigorous debate about whether existing evidence on common ownership has a plausible causal interpretation and, if it does, how to effectively address the resulting regulatory, legal, antitrust, and corporate governance challenges. For example, SEC Commissioner Jackson writes on this forum that it was “far from clear how — even if top managers receive an anticompetitive signal from their pay packages — those incentives affect those making pricing decisions throughout the organization. […] For these reasons, I worry that the evidence we have today may not carry the heavy burden that, as a Commissioner sworn to protect investors, I would require to impose costly limitations.” Similarly, FTC Commissioner Noah Phillips remarked that “areas of research that I, as an antitrust enforcer, would like to see developed before shifting policy on common ownership [are] whether a clear mechanism of harm can be identified.”

(more…)