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 substantial competitive harm in a given market. The Article’s second contribution is a set of modest, but important, policy proposals that flow directly from the paper’s core finding that there is no unequivocal answer to whether common ownership in a particular market will generate substantial competitive harm. Most important, rather than restrictions on common ownership or widespread antitrust investigation, or safe harbors or presumptions of legality, common ownership should continue to be evaluated on a case-by-case basis. In assessing the competitive effects of common ownership, courts and the antitrust agencies should not be bound by modified concentration measures (which in many circumstances may poorly gauge competitive effects) and, instead, should consider all factors bearing on the potential for common ownership to generate competitive harm. This approach remains true to both the modern structure of antitrust and current understanding of common ownership’s effect on competition.