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Do Institutional Investors Suppress Competition?

 |  September 19, 2018

Do Institutional Investors Suppress Competition?

By Vito J. Racanelli

Can institutional investing have anticompetitive effects? I’m still not convinced.

The idea, known as the common-ownership theory, received another airing at a panel debate at the Harvard Club Monday. As Barron’s recently wrote, the model is based on studies of airlines and banks that suggest when groups of big investors such as index or mutual funds hold material equity stakes in several companies in the same industry, they can foster behavior such as consumer price increases that improves the profits of the companies they own.

Panelist Douglas H. Ginsburg, a judge on the District of Columbia US Court of Appeals and a well-known critic of the theory, said that those who argue common ownership runs afoul of antitrust regulation are “opportunistically naïve” to believe laws such as the Sherman Ant-Trust Act and the Clayton Act are aimed at ownership by large asset managers. Those who argue the contrary, he said, aren’t interpreting the law consistently with what it intends.

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