Common Ownership, Institutional Investors, and Antitrust

Posted by Social Science Research Network

Common Ownership, Institutional Investors, and Antitrust

By Menesh Patel (Columbia Law School)

Abstract:     Recent empirical studies demonstrate the significant extent to which a small number of well-known institutional investors have taken on large ownership interests in the majority of large US public companies, including large ownership interests in horizontal competitors. The response to these studies has been dramatic, with calls for significant overhauls of antitrust policy and institutional shareholding due to common ownership’s potential anticompetitive effects. Yet, this Article argues, it is important to first appreciate a number of consequential complexities before any such changes occur. This Article makes two contributions to demonstrate this and situate the fact of common ownership within a more nuanced antitrust context. First, the Article shows that while common ownership can harm competition as a theoretical matter, whether and the extent to which common ownership will actually generate competitive harm in a given market depends on numerous factors, such as the nature and extent of common ownership in the relevant market, the structure of the market, shareholder incentives, and managerial objectives. For that reason, the mere fact that institutional investors’ significant equity holdings generate high levels of common ownership by itself is insufficient to conclude that this common ownership results in su…

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