Welfare Effects of Common Ownership

Grant description:

The common ownership hypothesis suggests that when large investors own shares in more than one firm within the same industry, those firms may have reduced incentives to compete. Firms can soften competition by producing fewer units, raising prices, reducing investment, innovating less, or limiting entry into new markets. The U.S. Department of Justice, the Federal Trade Commission, the European Commission, and the Organisation for Economic Co-operation and Development have all acknowledged concerns about the anticompetitive effects of common ownership and have relied on the theory and evidence of common ownership in major merger cases. This is a series of four separate projects by the four researchers. The first project seeks to show a link between executive compensation and measures of common ownership, providing a “mechanism” for how common ownership might affect competition and consumption. The second focuses on innovation, building on recent work and seeking to incorporate effects of common ownership, which are predicted to vary according to technological and product-market relationships. The third project is largely theoretical and will study the size and magnitude of the relationship between common ownership and innovation and the extent to which that varies across the universe of publicly listed U.S. corporations. Finally, the fourth project is a data collection effort, expanding the universe of high-quality common ownership data outside of the United States.