Does Common Ownership Explain Higher Oligopolistic Profits?

Does Common Ownership Explain Higher Oligopolistic Profits?

Description

There is compelling evidence that both concentration and profitability in oligopolistic industries have increased over the past two decades. Over roughly the same time period, the concentration of shareholding in the hands of the largest institutional investors has dramatically increased, with a corresponding increase in the degree to which investors (such as Vanguard, State Street, and BlackRock) own large equity stakes in competing portfolio companies. A number of authors have argued that the growth in this ‘common ownership’ has caused the increase in oligopoly profits and have proposed a variety of policy responses. In this paper, we review the available evidence. We argue that as of now (a) the evidence that common ownership is the driving force behind the increasing oligopoly profits is unconvincing, (b) there are plausible competing explanations for the correlation between profitability and common ownership. As a result, (c) regulatory intervention directed against common ownership is not currently warranted, given the significant costs of such intervention. This paper proceeds as follows. In Section 13.2 we provide an overview of the evidence that concentration and profitability have increased. In Section 13.3, we consider the evidence that increased common ownership is the cause of the increase in profitability. Section 13.4 considers alternative explanations for the correlation between increasing concentration, increasing profitability, and increasing common ownership, along with the available evidence in support of these alternative hypotheses. Section 13.5 considers the policy implications of the current state of play.

Source Publication

Intersections Between Corporate and Antitrust Law

Source Editors/Authors

Marco Corradi, Julian Nowag

Publication Date

2023

Does Common Ownership Explain Higher Oligopolistic Profits?

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