Anti-Competitive Effects of Common Ownership

Abstract

Many natural competitors are jointly held by a small set of large diversified institutional investors. In the US airline industry, taking common ownership into account implies increases in market concentration that are 10 times larger than what is “presumed likely to enhance market power” by antitrust authorities. We use within-route variation over time to identify a positive effect of common ownership on ticket prices. A panel-IV strategy that exploits BlackRock's acquisition of Barclays Global Investors confirms these results. We conclude that a hidden social cost -- reduced product market competition -- accompanies the private benefits of diversification and good governance.