Varieties and Mechanisms of Common Ownership: A Calibration Exercise for Competition Policy

Abstract

Minority shareholdings have been on the regulatory agenda of competition authorities for some time. Recent empirical studies, however, draw attention to a new, thought provoking theory of harm: common ownership by institutional investors holding small, parallel equity positions in several competing firms within concentrated industries. Critics of the alleged “common ownership hypothesis” raise a range of skeptical arguments. Yet, EU and US antitrust agencies are closely following these developments indicating an appetite to act. This article connects the common ownership debate to merger control. It explores the spectrum of legal control as regards partial acquisitions; the nature of potential competition effects arising from passive partial shareholding; the plausibility of common owners’ anticompetitive strategies but also the economic bounds of control vis-a-vis corporate management. Drawing a distinction between “concentrated” and “diffuse” common ownership, the article sheds light on the different supporting mechanisms and varying harm potential of each type in certain settings. Competition policy and merger control should stay current by explicitly recognizing these differences in enforcement practice and by developing guidelines on how to treat common ownership cases in the future.