Price Effects of Common Ownership in the Seed Sector

AuthorJennifer Clapp,Mohammad Torshizi
Date01 March 2021
Published date01 March 2021
Subject MatterArticles
Price Effects of Common
Ownership in the Seed Sector
Mohammad Torshizi* and Jennifer Clapp**
We investigate the effects of common ownership on firms’ incentives to compete. Using a theoretical
model, we illustrate how common ownership changes the nature of competition among firms in the
same sector. Our empirical analysis examines these dynamics in the U.S. seed industry and shows that
the rise of common ownership concentration is a significant contributor to increase in soy, corn, and
cotton seed prices over the 1997–2017 period. These findings contribute to the current literature
regarding the anticompetitive effects of common ownership and confirm the result of studies per-
formed in other sectors, such as airlines.
common ownership, prices, competition, market concentration, seeds, institutional investment
Patterns of common ownership—that is, instances where an investor holds minority shares in multiple
competing firms in the same market segment
—have become more pronounced in recent years across
a range of sectors. Institutional investors, including large asset management companies such as Black-
Rock, State Street, Vanguard, Fidelity, and Capital Group, have emerged as some of the most promi-
nent common owners of shares in major firms in nearly all sectors represented in the Standard and Poor
500 stock index. This pattern of common ownership represents a significant shift from the ownership
patterns of major firms as recently as twenty years ago and can be traced to the rise of new forms of
* Resource Economics and Environmental Sociology, Faculty of Agricultural, Life & Environmental Sciences, University
of Alberta, Edmonton, Alberta, Canada
** School of Environment, Resources and Sustainability, University of Waterloo, Ontario, Canada
Corresponding Author:
Jennifer Clapp, School of Environ ment, Resources and Sustainab ility, University of Waterloo, 20 0 University Ave. West,
Waterloo, Ontario, Canada N2L 3G1.
1. Organization for Economic Cooperation and Development, Common Ownership by Institutional Investors and Its Impact on
Competition: Background Note, DAF/COMP(2017)10, Directorate for Financial and Enterprise Affairs, Competition
Committee, OECD Secretariat, Nov. 29, 2017,
The Antitrust Bulletin
2021, Vol. 66(1) 39–67
ªThe Author(s) 2021
Article reuse guidelines:
DOI: 10.1177/0003603X20985783
financial investment products—especially index funds and exchange traded funds—that large asset
management companies offer to other institutional investors.
There is a growing literature that seeks to better understand the impact of common ownership
patterns among major firms within different sectors.
Theoretically, some analysts have argued
that commonly owned firms have less incentive to compete with one another, which could have
a range of impacts, including effects on pricing, innovation, and openness to new entrants into
Empirically, a number of studies have investigated whether these effects have materi-
alized in practice, with findings that show price effects in several sectors.
Other studies have
raised questions about these initial studies on the effects of common ownership, critiquing their
methodology for empirical analysis as well as their theoretical reasoning.
This debate has been
closely watched by policymakers as it has significance for how corporate concentration is
This article seeks to contribute to this debate by showing how the rise of common ownership in the
seed sector affects firms’ incentives to compete, which we illustrate with an evaluation of its impact on
seed prices. This article analyzes empirical data from the U.S. seed industry over the 1997–2017 period
to determine whether seed prices have increased as a result of the rise in common ownership of the
major companies that dominate that sector. The analysis utilizes methods that aim to correct for the
critiques that have been made about the methods used in studies in other sectors. We use a variation of
the modified Herfindahl Hirschman Index (MHHI) of common ownership concentration to avoid the
problem of conflating the effects of market concentration and common ownership concentration on
There are several reasons why the seed industry is an especially important sector for an analysis of
the effects of common ownership. First and foremost, control of the seed industry may result in control
of the entire agrifood supply chain
or what has been described as “food power.”
The price effects of
common ownership on seeds, therefore, have great significance for broader policy debates regarding
food security. Second, institutional investors hold significant shares of firms in the seed industry,
which have increased dramatically over the last two decades.
In 2016, the top five asset management
companies owned 10%–30%of the shares of the top seed companies (see Figures 1 and 2). As such,
common ownership is prevalent and has increased markedly, making the sector an excellent one for an
investigation into its effects on competition and pricing. Third, the seed industry is highly consoli-
dated, which has allowed for other types of strategic behavior such as cross-licensing and joint
2. Jan Fichtner et al., Hidden Power of the Big Three? Passive Index Funds, Re-concentration of Corporate Ownership, and
New Financial Risk,19B
US.POLIT. 298 (2017).
3. For an extensive review, see Martin C. Schmalz, Common-Ownership Concentration and Corporate Conduct,10A
REV.FINANC.ECON. 413 (2018).
4. Id.
5. Jos´e Azar et al., Anticompetitive Effects of Common Ownership, 73 J. FINANCE. 1513 (2018).
6. Jos´e Azar et al., Ultimate Ownership and Bank Competition, SSRN, July 23, 2016,¼2710252.
7. Daniel P. O’Brien & Keith Waehrer, The Competitive Effects of Common Ownership: We Know Less than We Think,81
ANTITRUST L.J. 729 (2017); Edward B. Rock & Daniel L. Rubinfeld, Antitrust for Institutional Investors (Draft Law &
Economics Research Paper Series, Working Paper No. 17–23, 2017),¼2998296.
8. Brooke Fox & Robin Wigglesworth, Common Ownership of Shares Faces Regulatory Scrutiny,F
9. Philip H. Howard, Visuali zing Consolidation in the Global Seed Industry: 1996–2008,1SUSTAINABILITY 1266 (2009);
Olivier De Schutter, The Political Economy of Food Systems Reform,44E
UR.REV .AGRIC.ECON. 705 (2017).
10. Sylvie Bonny, Corporate Concentration and Technological Change in the Global Seed Industry,9SUSTAINABILITY 1632
11. Jennifer Clapp, The Rise of Financial Investment and Common Ownership in Global Agrifood Firms, 26 REV.INT.POLIT.
ECON. 604 (2019); Ioannis Lianos et al., Financialisation of the Food Value Chain, Common Ownership and Competition
Law (CLES Research Paper Series 4/2-19, 2019).
40 The Antitrust Bulletin 66(1)

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