By Daniel P. O’Brien –
An intense policy debate rages over the competitive effects of common ownership. But the empirical work that sparked the debate is not well tethered to economic theory, and this has led to misconceptions about what the empirical work shows. The purpose of this paper is to take a step back and assess what existing economic theory says and does not say about the competitive effects of common ownership and evaluate the empirical work and policy debate in that light. I focus on four issues: (1) the unsettled state of knowledge about how ownership translates into control; (2) macro-level issues when the relevant common ownership group (a concept I introduce) covers many industries; (3) institutional investors’ incentives; and (4) the failure of motivating empirical work to econometrically identify effects. Based on these factors, among others, I conclude that the evidence to date has not shown that common ownership by institutional investors causes harm.