Bates White Partners Daniel O’Brien and Keith Waehrer have written a paper, titled “The Competitive Effects of Common Ownership: We Know Less than We Think,” that examines recent empirical research claiming to show that common ownership by institutional investors harms competition even when all financial holdings are minority interests. This research they examine has received a great deal of attention, leading to both calls for and actual changes in antitrust policy. Drs. O’Brien and Waehrer find that these conclusions regarding the effects of minority shareholdings on competition are not well established. The empirical approach taken in this literature, as shown by Drs. O’Brien and Waehrer, has a significant risk of generating a false positive relationship between common ownership and prices.
They find that more rigorous empirical work is needed to draw policy conclusions. They also suggest avenues for further research that would yield better-grounded findings about the relationship between price and common ownership than the research on the subject to date.
An economic framework for assessing the competitive effects of common ownership was co-developed by Dr. O’Brien in the 1990s, which antitrust authorities have used to help evaluate the competitive effects of joint ventures and partial acquisitions. Drs. O’Brien and Waehrer explain that empirical research they examine misapplies this framework in evaluating the effects of minority shareholdings on prices. Nonetheless, this empirical research is already affecting antitrust policy around the world.
Drs. O’Brien and Waehrer explain that common ownership can have anticompetitive effects in certain circumstances. However, they do not find that the empirical research to date provides sufficient evidence to warrant large changes in competition policy toward common ownership involving minority shareholdings.