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Anti-Competitive Effects of Common Ownership

By  |  May 18, 2017

Posted by Social Science Research Network

Anti-Competitive Effects of Common Ownership

By José Azar (University of Navarra), Martin C. Schmalz (University of Michigan) & Isabel Tecu
(Charles River Associates)

Abstract:     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 ten times larger than what is “presumed likely to enhance market power” by antitrust authorities. We find a robust correlation between within-route changes in common ownership concentration and route-level changes in ticket prices, also when we only use variation in ownership due to the combination of two large investors. We conclude that a hidden social cost – reduced product market competition – accompanies the private benefits of diversification and good governance.

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