Recent Studies on Common Ownership, Firm Behavior, and Market Outcomes

AuthorMartin C. Schmalz
Published date01 March 2021
Date01 March 2021
Subject MatterArticles
Recent Studies on Common
Ownership, Firm Behavior,
and Market Outcomes
Martin C. Schmalz*
The literature on competitive effects of common ownership has grown at a fast rate in the past two
years. Anticompetitive effects have been confirmed with alternative reduced-form and structural esti-
mation methods,in different industries,geographies, and jurisdictions. Multiple independent studies have
disproven early critiques of the literature. Other papers document the heterogeneity of common
ownership effects on competition across markets and industries. Importantadvances were made on the
study of the economic mechanisms andgovernance channels that implement anti-competitive incentives.
New theory refines the interpretation of existing empirical work. Access to high-quality ownership and
product-market data remains a bottleneck for meaningful research in the area.
ownership, control, industry concentration, antitrust, competition, managerial incentives, corporate
The documentation of likely anticompetitive effects of common ownership in specific U.S. airline
has triggered an explosion of research on the effects of common ownership on competition
and corporate behavior. In this review, I seek to give some structure to the latest work in this area. I will
selectively cover a few of the more prominent papers that have emerged since the publication of the
last review.
I will also cover some important papers that had escaped my attention then. I focus on
the papers in the economics and finance literatures, as Elhauge has recently covered developments in
the legal literature.
By covering relatively few papers in depth, I will illustrate key issues for the
literature’s future development.
* University of Oxford, OMI, CEPR, ECGI, CESIfo, University of Cologne, and C-SEB
Corresponding Author:
Martin C. Schmalz, University of Oxford, Oxford OX1 1HP, United Kingdom.
1. Jos´e Azar et al., Anticompetitive Effects of Common Ownership,73J.FIN. 1513 (2018) [hereinafter AST].
2. Martin C. Schmalz, Common-Ownership Concentration and Corporate Conduct,10A
NN.REV.FIN.ECON. 413 (2018).
3. See Einer Elhauge, How Horizontal Shareholding Harms Our Economy—And Why Antitrust Law Can Fix It, 10 HBLR 207
(2020) [hereinafter Elhauge, How Horizontal Shareholding Harms]. Elhauge also offers a detailed review of various recent
The Antitrust Bulletin
2021, Vol. 66(1) 12–38
ªThe Author(s) 2021
Article reuse guidelines:
DOI: 10.1177/0003603X20985804
Key issues I flagged in my last review for consideration by future research, and that continue to be
relevant, include:
(1) documentation of observed and formal investigation of theoretically plausible governance
mechanisms by which common ownership can cause changes in competitive outcomes,
(2) investigations as to whether there are measurable common ownership effects on firm behavior
and market outcomes in different industries and geographies,
(3) development of alternative estimation techniques, including structural methods, alternative
measures of common ownership, and identification strategies,
(4) focus on firm behavior and product market outcomes rather than broad “industry” studies, and
(5) a focus on (ownership) data quality and the need for regulators to make available high-quality
ownership data to enable researchers to study this important topic.
The rationale was as follows: first, a better understanding of mechanism and theory as well as
measurement and estimation techniques help increase confidence in the causal interpretation of
empirical results, the extrapolation of existing results, quantitative measurement of effects, and help
inform policy makers about the likely effects of implementing various policy proposals. Second, a
formal study of mechanisms is necessary because the existing corporate governance literature does not
take equilibrium effects from strategic interacti ons between firms into account, which has led to
logically wrong conclusions in the literature. Third, testing the theory in different industries and on
different outcomes would help inform policy makers whether targeted industry-specific interventions
or broad-based structural reforms are more appropriate policy responses. Lastly, a focus on product
market outcomes as opposed to broad industry studies and on high-quality ownership data is necessary
to avoid false negatives that can arise from an attenuation bias due to mismeasured common ownership
and less meaningful market definitions.
This article reviews the many important papers that have pushed the boundaries of knowledge
forward in each of these five areas. Whereas the vast majority of the review details such positive
progress, I will also critically discuss some prominent papers that have not paid attention to data
quality and theoretical foundations and thus have come to conclusions that lack substantiation. That
part includes a discussion of withdrawals of earlier claims by two sets of authors that had criticized the
literature on anticompetitive effects and that are often mentioned in the policy debate. I also discuss a
new structural paper that proves that Azar, Schmalz, and Tecu’s (AST) results are not due to their use
of reduced-form methods that may be affected by endogenous market shares. These earlier claims
criticizing the literature had been widely distributed in the profession and have influenced the policy
debate—but have turned out to be based on the selection of small subsamples of the data as well as data
errors, which in two cases even involved replacing actual data with zeros.
This review is selective in that it does not cover significant new work in other parts of the literature
and in particular important theoretical work on the macroeconomic consequences of common
papers in the economics literature, which no interested reader should miss. Id. at 209–55; Einer Elhauge, The Causal
Mechanisms of Horizont al Shareholding,82O
HIO ST. L.J. (forthcoming 2021), http s:// act¼3370675 or MATTHEW BACKUS ETAL., THE COMMON OWNERSHIP HYPOTHESIS:THEORY AND
EVIDENCE, The Brookings Institution (2019),
Common-Ownership.pdf a lso offer a review, which howe ver takes the narrower per spective of the modern indus trial
organization (IO) literature with its valid, but selective, methodological preferences and concerns.
4. For a detailed explanation of the problems with two prominent studies that have tried to disprove anticompetitive effects from
horizontal sharehol ding using industry defin itions that are vastly larger than actual market definitions and thus treat
shareholders as horizontal when they are not, see Elhauge, How Horizontal Shareholding Harms,supra note 3, at 244–
54. See also the methodological critique in this issue by Jos´e Azar et al., Research on the Competitive Consequences of
Common Ownership: A Methodological Critique,66A
NTITRUST BULL. 113 (2021).
Schmalz 13

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