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Anticompetitive Effects Of Common Ownership
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Book Synopsis Anticompetitive Effects of Common Ownership by : José Azar
Download or read book Anticompetitive Effects of Common Ownership written by José Azar and published by . This book was released on 2018 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many natural competitors are jointly held by a small set of large 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. Within-route changes in common ownership robustly correlate with route-level changes in ticket prices, even when we only use variation in ownership due to the combination of two large asset managers. We conclude that a hidden social cost - reduced product market competition - accompanies the private benefits of diversification and good governance.
Book Synopsis Revisiting the Anticompetitive Effects of Common Ownership by : José Azar (College teacher)
Download or read book Revisiting the Anticompetitive Effects of Common Ownership written by José Azar (College teacher) and published by . This book was released on 2021 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use data from the U.S. airline industry to test the hypothesis, consistent with the general equilibrium oligopoly model of Azar and Vives (2021), that inter-industry common ownership should be associated with lower prices in product markets. We find that, as the model predicts, increases over time in intra-industry common ownership are associated with higher prices, while increases in inter-industry common ownership are associated with lower prices. The aggregate effect is nil. We also find that common ownership by the "Big Three" (BlackRock, Vanguard and State Street) is associated with lower airline prices, while common ownership by shareholders other than the Big Three is associated with higher prices. The results highlight the limitations of partial equilibrium oligopoly theory in the context of common ownership, and the need to consider a general equilibrium perspective.
Book Synopsis The Competitive Effects of Common Ownership by : José Azar
Download or read book The Competitive Effects of Common Ownership written by José Azar and published by . This book was released on 2017 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: Kennedy, O'Brien, Song, and Waehrer (2017) replicate the panel results of Azar, Schmalz and Tecu (forthcoming), but argue on theoretical grounds that the estimates should not be interpreted as anti-competitive effects of common ownership. They then develop and estimate alternative models and find no significant positive effects of common ownership on airline ticket prices. This note points out features of their empirical analysis that cast doubt on the reliability of their method and results. Their conclusion that the data do not support AST's interpretation seems unwarranted.
Book Synopsis Internet Appendix for by : José Azar
Download or read book Internet Appendix for written by José Azar and published by . This book was released on 2018 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This internet appendix complements the paper "Anticompetitive Effects of Common Ownership" and is organized as follows: Section I outlines a model of competition under common ownership that yields the network density measure of common ownership concentration we use in the empirical analysis. The data appendix in section II provides details on data set construction and variable definitions. Section III contains robustness checks and provides additional results described in the main paper.
Book Synopsis A Refutation of "common Ownership Does Not Have Anti-competitive Effects in the Airline Industry" by : José Azar
Download or read book A Refutation of "common Ownership Does Not Have Anti-competitive Effects in the Airline Industry" written by José Azar and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that the main claim in Dennis, Gerardi, and Schenone (JF forthcoming) (DGS), namely "that the documented positive correlation between common ownership and ticket prices stems from the market share component of the common ownership measure, and not the ownership and control components," is factually incorrect. In particular, we show empirically that the placebo that according to DGS "keeps market shares fixed" is in fact highly negatively correlated with market shares. This correlation is mechanical and arises because the data set is an unbalanced panel, as we show analytically. We make a methodological contribution to the literature by showing how one can actually separate variation from market shares from variation in ownership. Contrary to DGS' claims, ownership changes do predict price changes once one constructs a valid placebo that actually separates the variation from market shares from the variation in ownership. AST's panel regressions in fact underestimated the price effect of common ownership, due to the endogeneity of market shares.
Book Synopsis Common Ownership Does Not Have Anti-competitive Effects in the Airline Industry by : Patrick Dennis
Download or read book Common Ownership Does Not Have Anti-competitive Effects in the Airline Industry written by Patrick Dennis and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Institutional investors often own significant equity in firms that compete in the same product market. These "common owners" may have an incentive to coordinate the actions of firms that would otherwise be competing rivals, leading to anti-competitive pricing. This paper uses data on airline ticket prices to test whether common owners induce anti-competitive pricing behavior. We find little evidence to support such a hypothesis, and show that the positive relationship between average ticket prices and a commonly used measure of common ownership previously documented in the literature is generated by the endogenous market share component, rather than the ownership component, of the measure.
Book Synopsis Why Common Ownership Creates Antitrust Risks by : José Azar
Download or read book Why Common Ownership Creates Antitrust Risks written by José Azar and published by . This book was released on 2017 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: The share of stocks beneficially owned by institutional investors has increased substantially over the last three decades. Together with a high and increasing level of concentration in the asset management industry, this trend implies that a small number of institutional investors now constitute the largest shareholders of most publicly traded firms in the U.S. and in other developed economies. When the same set of investors owns most firms, they are bound to own several firms in the same industry. Such overlapping ownership interests among competitors, or “common ownership,” may imply a reduction in firms' incentives to compete, compared to a situation in which competitors are controlled by separate sets of investors, and may thus create antitrust risks. Recent empirical research shows evidence for such anti-competitive effects of common ownership. These findings have since ignited a debate on the antitrust risk posed by institutional investors, its legal implications and potential solutions. This article first illustrates the extent of present-day common ownership and discusses the economic logic of why common ownership leads to reduced incentives to compete and may cause anti-competitive outcomes. We then review some of the empirical evidence to date, discuss critiques of the same and explain the conceptual problems inherent with all potential policy solutions. The legal debate around these findings is discussed by a fast-growing literature, including contributions by other authors in this issue.
Book Synopsis Common Ownership and Coordinated Effects by : Edward B. Rock
Download or read book Common Ownership and Coordinated Effects written by Edward B. Rock and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: With the growth of common ownership and investor engagement with portfolio firms, the possibility of adverse competitive effects of common ownership has become an important issue. To date, most of the focus has been on “unilateral” effects. In this Article, we shift the focus to the potential “coordinated” effects of common ownership and the appropriate antitrust treatment. After examining the ways in which a common owner could be a particularly effective cartel facilitator, we identify five scenarios, based on antitrust case law and enforcement experience, in which common ownership could plausibly increase the potential for coordinated conduct in concentrated markets. For each, we provide an economic analysis of the potential anticompetitive coordinated effects and we consider the appropriate legal treatment under Section 1 of the Sherman Act. The five scenarios are: Common Owners as Cartel Initiators; Common Owners as Trustworthy Conduits; a Common Compensation Structure as a Facilitating Practice; Common Owners as Brakes; and Common Owners as Vectors of Infection. We then turn to whether and how the anticompetitive potential for coordinated effects of common ownership might affect merger analysis under Section 7 of the Clayton Act or the EU Merger Regulation.
Download or read book Reply to written by José Azar and published by . This book was released on 2018 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dennis, Gerardi, and Schenone (2017) (DGS) claim to replicate the data construction and results of Azar, Schmalz, and Tecu (forthcoming) (AST). While their implementation of the main specifications in AST generates qualitatively similar results, they claim that AST's baseline results are driven 1) by the use of passenger volume as regression weights and 2) largely by the top fifth percentile of markets in the passenger count distribution.In this note, we show that these claims are factually incorrect. First, because DGS do not in fact replicate the data construction described in AST, their paper is of limited usefulness in showing the effect of deviations from AST's empirical specifications. Second, we show that AST's results are qualitatively robust to not weighting regressions. Third, AST's results also hold on subsamples excluding the top fifth percentile of markets by passenger count. Additional evidence we present in this note suggests that DGS's erroneous conclusions are driven by an incorrect treatment of ownership data as well as other differences in their sample's characteristics compared to AST's.
Book Synopsis Estimating the Competitive Effects of Common Ownership by : Jacob Gramlich
Download or read book Estimating the Competitive Effects of Common Ownership written by Jacob Gramlich and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: If managers maximize the payoffs of their shareholders rather than firm profits, then it may be anticompetitive for a shareholder to own competing firms. This is because a manager?s objective function may place weight on profits of competitors who are held by the same shareholder. Recent research found evidence that common ownership by diversified institutional investors is anticompetitive by showing that prices in the airline and banking industries are related to generalized versions of the Herfindahl-Hirschman Index (HHI) that account for common ownership. In this paper we propose an alternative approach to estimating the competitive effects of common ownership that relates prices and quantities directly to the weights that such managers may be placing on the profits of their rivals. We argue that this approach has several advantages. First, the approach does not inherit the endogeneity problems of HHI regressions, which arise because HHI measures are functions of quantities. Second, because we treat quantities as outcomes we can look for competitive effects of common ownership on both prices and quantities. Third, while concentration measures vary only at the market-time level, the profit weights also vary at the firm level, which allows us to control for a richer set of unobservables. We apply this approach to data from the banking industry. Our empirical findings are mixed, though they?re preliminary as we investigate irregularities in ownership data (Anderson and Brockman (2016)). The sign of the estimated effect is sensitive to the specification. Economically, estimated effects on prices and quantities are fairly small.
Book Synopsis Common Ownership, Institutional Investors, and Antitrust by : Menesh S. Patel
Download or read book Common Ownership, Institutional Investors, and Antitrust written by Menesh S. Patel and published by . This book was released on 2019 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 U.S. 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. 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.
Book Synopsis The Competitive Effects of Common Ownership by : Daniel P. O'Brien
Download or read book The Competitive Effects of Common Ownership written by Daniel P. O'Brien and published by . This book was released on 2017 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent empirical research purports to show that common ownership by institutional investors harms competition even when all financial holdings are minority interests. This research has received a great deal of attention, leading to both calls for and actual changes in antitrust policy. This paper examines the research on this subject to date and finds that its conclusions regarding the effects of minority shareholdings on competition are not well established. Without prejudging what more rigorous empirical work might show, we conclude that researchers and policy authorities are getting well ahead of themselves in drawing policy conclusions from the research to date. The theory of partial ownership does not yield a specific relationship between price and the MHHI. In addition, the key explanatory variable in the emerging research - the MHHI - is an endogenous measure of concentration that depends on both common ownership and market shares. Factors other than common ownership affect both price and the MHHI, so the relationship between price and the MHHI need not reflect the relationship between price and common ownership. Thus, regressions of price on the MHHI are likely to show a relationship even if common ownership has no actual causal effect on price. The instrumental variable approaches employed in this literature are not sufficient to remedy this issue. We explain these points with reference to the economic theory of partial ownership and suggest avenues for further research.
Book Synopsis The Great Reversal by : Thomas Philippon
Download or read book The Great Reversal written by Thomas Philippon and published by Belknap Press. This book was released on 2019 with total page 361 pages. Available in PDF, EPUB and Kindle. Book excerpt: American markets, once a model for the world, are giving up on competition. Thomas Philippon blames the unchecked efforts of corporate lobbyists. Instead of earning profits by investing and innovating, powerful firms use political pressure to secure their advantages. The result is less efficient markets, leading to higher prices and lower wages.
Book Synopsis The Common Ownership Trilemma by : José Azar
Download or read book The Common Ownership Trilemma written by José Azar and published by . This book was released on 2019 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper argues that it is impossible to achieve the following objectives simultaneously: (i) portfolio diversification, (ii) shareholder representation, and (iii) competition. In an economy where everyone holds the market portfolio, all the companies have the same shareholders. If, in addition, firms act in the interest of their shareholders (i.e., if the agency problem is solved), the equilibrium outcome is equivalent to an economy-wide monopoly. When managers are entrenched, however, the anti-competitive effects of common ownership are mitigated, yet they only disappear completely in the extreme case that managers are fully insulated from shareholder dissent. The trilemma highlights a fundamental systemic problem in stock market economies: their inherent tendency towards common ownership, and therefore away from market competition.
Book Synopsis Long-run Trends in School Productivity by : Andrew Leigh
Download or read book Long-run Trends in School Productivity written by Andrew Leigh and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "Outside the United States (U.S.), very little is known about long-run trends in school productivity. We present new evidence using two data series from Australia, where comparable tests are available back to the 1960s. For young teenagers (aged 13-14), we find a small but statistically significant fall in numeracy over the period 1964-2003, and in both literacy and numeracy over the period 1975-1998. The decline is in the order of one-tenth to one-fifth of a standard deviation. Adjusting this decline for changes in student demographics does not affect this conclusion; if anything, the decline appears to be more acute. The available evidence also suggests that any changes in student attitudes, school violence, and television viewing are unlikely to have had a major impact on test scores. Real per-child school expenditure increased substantially over this period, implying a fall in school productivity. Although we cannot account for all the phenomena that might have affected school productivity, we cannot account for all the phenomena that might have affected school productivity, we identify a number of plausible explanations"--Abstract.
Book Synopsis Common Ownership and Fiduciary Duty by : Martin C. Schmalz
Download or read book Common Ownership and Fiduciary Duty written by Martin C. Schmalz and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A fast-growing legal literature commenting on a set of empirical papers alleging anticompetitive effects of common ownership claims that the reported effects, if true, would imply that corporate executives violate their fiduciary duty: whereas acting in the interest of common owners can help raise industry profits, doing so harms non-common owners of individual firms -- so the claim. Similarly, mutual fund managers with heterogenous portfolios would violate their fiduciary duty to act in the interest of their funds' investors if they delegated governance and voting authority to a centralized, family-level entity, that represents interests different from their own. This paper evaluates these claims using a formal model grounded in established economic theory. The model shows that firm managers who act in the interest of common owners may indeed choose strategies that differ from those preferred by a non-common owner. However, doing so raises firm profits above the level that would be attained if non-common owners had controlled the firm. As a result, non-common owners are not harmed when executives heed to common owners' governance demands, and neither are executives and directors who care about firm value.The model reveals that it is precisely the heterogeneity of shareholder (or fund) portfolios that gives individual shareholders and fund managers an incentive to centralize corporate governance at the same level that full diversification is obtained. Heterogeneity of fund portfolios is not a valid antitrust defense, but, to the contrary, the economic rationale why family-level centralization of governance is both individually rational and problematic from a policy perspective.These results establish that even if a violation of fiduciary duty could be formally established in a legal sense when firm managers heed to common owners' instead of non-common owners' preferences, plaintiffs would be unlikely to emerge, because no shareholder is harmed. I conclude that the fiduciary-duty critique of the common-ownership literature in its current form is difficult to reconcile with established economic theory.
Book Synopsis The Antitrust Paradox by : Robert Bork
Download or read book The Antitrust Paradox written by Robert Bork and published by . This book was released on 2021-02-22 with total page 536 pages. Available in PDF, EPUB and Kindle. Book excerpt: The most important book on antitrust ever written. It shows how antitrust suits adversely affect the consumer by encouraging a costly form of protection for inefficient and uncompetitive small businesses.
