Review of Anti-Competitive Effects of Common Ownership

Abstract

Many natural competitors are jointly held by a small set of institutional investors. Using the airline industry as a laboratory, we provide evidence that such common ownership has adverse effects on product market competition. We first document that taking common ownership into account implies increases in market concentration that are 10 times larger than what is “presumed to be likely to enhance market power” by antitrust authorities. We then identify a positive effect of common ownership on airline ticket prices by exploiting differences across routes in the evolution of common ownership over time. To address reverse causality and other endogeneity concerns, we confirm our results using the exogenous shock to airline ownership concentration generated by BlackRock’s acquisition of Barclays Global Investors in 2009. Our results call attention to a hidden social cost – reduced product market competition – that accompanies the private benefits of diversification and good governance.