Anti-Competitive Effects of Common Ownership
In the United States, institutional investors hold between seventy to eighty percent of US publicly traded firms. Moreover, it is common for a single institutional investor to be a major shareholder of different firms competing within the same industry. BlackRock, for example, is the largest shareholder in each of the largest three banks in the United States, while pharmacy rivals CVS and Walgreens have the exact same top five shareholders. Could this result in anti-competitive behavior and higher prices for consumers?
According to a study presented by Martin Schmalz, University of Michigan, at JRCPPF’s Fifth Annual Conference the answer is a resounding yes. The study, co-authored with Jose Azar and Isabel Tecu from Charles River Associates, finds that that common ownership of airlines increases airfares by 3-11%. The Department of Justice has taken note and is currently investigating the four largest airlines to determine whether dealings with their major shareholders have led to higher airfares.
A summary of the research paper, prepared by Daniel Chen, JRCPPF Undergraduate Associate, can be found here. More information is available on the Fifth Annual Conference page. The video of Schmalz’s presentation together with the paper's discussion by Mauricio Larrain, Columbia Business School. You can watch the video here.