Study: Competition Mattering Less as Same Groups of Investors Increasingly Own Shares in Most Competing Companies

Chris Gaetano
Published Date:
Feb 19, 2019

While monopoly power and its deleterious effects on market competition are well known, a recent article in the Harvard Business Review says that these same hazards are starting to emerge in a different way as, increasingly, the same groups of investors have large ownership stakes in most of the major players in an industry. For example, according to the paper, investment companies Vanguard and BlackRock form the largest non-individual owners of CVS, Walgreens, Boots Alliance and Rite Aid, which are typically thought of as competitors. Similarly, the three largest shareholders of Apple also make up three of the largest shareholders of Microsoft. The paper said this trend has grown dramatically: Between 1994 and 2013, "the probability of two competing firms in the S&P 1500 having a large horizontal shareholder increased from 16 to 90 percent." 

The paper argues that so much common ownership between ostensible competitors provides an incentive against the firms actually competing, and instead favors activities such as forming anti-competitive agreements or passing along sensitive information. Beyond active collusion, which can be prosecuted, the paper said there can also be more unconscious anti-competitive effects that come out in corporate communications and information flows between firms and owners. It also noted that these large shareholders have a higher incentive to vote for anti-competitive measures. The effect of this, among other things, is higher prices for consumers: Other studies have found that common ownership correlates with higher prices in the airline, pharmaceutical and banking industries. 

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