The Yale Law Journal

March 2020

The Strategies of Anticompetitive Common Ownership

Antitrust LawCorporate Law

abstract. Scholars and antitrust enforcers have raised concerns about anticompetitive effects that may arise when institutional investors hold substantial stakes in competing firms. Their concern rests on empirical evidence that such common concentrated ownership is associated with higher prices and lower output. This evidence sharply challenges both antitrust orthodoxy and corporate governance scholarship.

In this Article, we examine the causal mechanisms that might link common ownership to anticompetitive effects. We consider whether the current empirical evidence supports the existence of these mechanisms and whether institutional investors would plausibly employ them.

Our main conclusion is that most proposed mechanisms either lack significant empirical support or else are implausible. Notably, some widely discussed mechanisms—for example, cartel facilitation and passive failures to encourage competition among portfolio firms—are not empirically tested. Moreover, institutional investors’ incentives to increase portfolio value are weak, reducing the likelihood that these investors will pursue mechanisms that carry significant reputational or legal risks. We find, however, that a different mechanism, which we call “selective omission,” is both consistent with the evidence and plausibly employed by institutional investors. Looking ahead, our analysis suggests paths for future research and provides a guide for further investigation into how common owners and firms may interact to produce anticompetitive effects.

author. C. Scott Hemphill is Moses H. Grossman Professor of Law, New York University School of Law. Marcel Kahan is George T. Lowy Professor of Law, New York University School of Law. We thank Ryan Bubb, Emiliano Catan, Isaac Corre, Florian Ederer, Einer Elhauge, Brad Howells, Bert Huang, Wei Jiang, Adi Libson, Louis Kaplow, Al Klevorick, Doug Melamed, John Morley, Tejas Narechania, Ittai Paldor, Eric Posner, Ed Rock, Nancy Rose, Dan Rubinfeld, Steve Salop, Martin Schmalz, Holger Spamann, David Walker, Glen Weyl, Lawrence White, and audiences at Columbia, Fordham, Harvard, the New York State Bar Association, Northwestern, NYU, Oxford, Stanford, Tel Aviv University, the annual meetings of the American Law and Economics Association and the Western Economic Association, and a Federal Trade Commission hearing on common ownership for helpful comments and discussions. Tim Keegan, Catalina Villalobos, and Felix Zhang provided outstanding research assistance.