Common Ownership and Competition – The Current State of the Debate

Introduction

A new concern is haunting the competition community – the concern caused by horizontal shareholdings of institutional investors. In several recent contributions, it has been claimed that this newly identified competition problem is of significant importance but remained undetected by competition authorities for a long time.1 The central argument is that institutional investors having minority shareholdings in many firms in the same market have an incentive to increase the profitability of all firms in that market by softening competition. This is because the total profit in a market is maximised when firms do not compete with each other but form a cartel and behave collectively like a monopolist. This is in contrast to an investor who is invested only in one firm and who wants to increase the profit of this company at the expense of its competitors. Thus, if there is widespread common ownership, the overall intensity of competition would be reduced, prices were higher and consumer welfare would decrease. Several empirical investigations, in particular of the airline and banking industry, found support for this claim. This competitive concern has also received considerable attention from the Directorate-General for Competition of the European Commission and Commissioner Vestager has announced to look closely into this matter. There is, however, also considerable scepticism whether minority shareholders are in fact able to influence the behaviour of firms in their interest and also whether the empirical studies are from a methodological point of view able to justify this concern. In this note, a brief survey of the current state of the debate is provided.

Beteiligte Personen

• Prof. Dr. Ulrich Schwalbe