Research on the Competitive Consequences of Common Ownership: A Methodological Critique

AuthorJosé Azar,Isabel Tecu,Martin C. Schmalz
Date01 March 2021
Published date01 March 2021
Subject MatterArticles
ABX985799 113..122 Article
The Antitrust Bulletin
2021, Vol. 66(1) 113–122
Research on the Competitive
ª The Author(s) 2021
Article reuse guidelines:
Consequences of Common
DOI: 10.1177/0003603X20985799
Ownership: A Methodological
Jos ´e Azar*, Martin C. Schmalz**, and Isabel Tecu***
This article argues that the evidence presented in several critiques of Azar, Schmalz, and Tecu’s (AST)
“airlines” paper does often not back the conclusion these studies draw. Specifically, widely circulated
studies claiming that there are no anticompetitive effects of common ownership or that there is no
evidence of it either do not attempt to refute AST’s findings of anticompetitive effects in the U.S.
airlines industry or in fact confirm the evidence by AST and even dispel valid concerns about AST’s
methodology. Focusing on Kennedy, O’Brien, Song, and Waehrer (KOSW), we note that their panel
regressions using market-share-free indices of common ownership concentration confirm the positive
correlation between common ownership concentration and price, which AST showed with a measure
containing potentially endogenous market shares. We then examine the alternative empirical methods
KOSW propose: (i) Their conclusion that estimates from a structural model show no evidence of
anticompetitive effects is based on an estimation that discards 90% of the available data and therefore,
at best, is only valid for that subsample; (ii) their structural model makes no economic sense because it
produces a negative effect of route distance on marginal cost; and (iii) they construct an alternative
version of the widely used BlackRock- Barclays Global Investors instrument that is arguably invalid.
Even absent these methodological concerns, KOSW’s structural estimates are so noisy that they do
not in fact reject the hypothesis that common ownership concentration has a positive effect on prices.
A more recent structural paper by Park and Seo has shown these concerns to be well-founded: using a
different and larger subsample of AST’s data and more standard estimation methods compared to
KOSW, they estimate a positive effect of common ownership on prices, as well as a positive effect of
route distance on cost. A lesson for future research—and readers of the literature—is to critically
evaluate the conclusions drawn by studies in this field, including those that advertise themselves as
providing evidence against the existence of anticompetitive effects of common ownership.
competition, ownership, diversification, pricing, antitrust, governance, product market
* University of Navarra, School of Economics and Business, and IESE Business School, Barcelona, Spain
** University of Oxford, Saı¨d Business School, Oxford, UK
*** Charles River Associates (CRA), Washington, D.C., USA
Corresponding Author:
Martin C. Schmalz, University of Oxford, Saı¨d Business School, Park End Street, Oxford OX1 1HP, UK.

The Antitrust Bulletin 66(1)
Anticompetitive effects of common ownership have long been acknowledged to be a theoretical
possibility. Whereas prior empirical work had shown effects of common ownership on various aspects
of corporate decision making,1 Azar, Schmalz, and Tecu’s (hereinafter AST)2 paper was the first to
provide empirical evidence for market-level competitive effects. Specifically, AST measure common
ownership at the market level in the U.S. airlines industry and show that increases in common
ownership concentration are linked to increased prices. The paper has kicked off a vigorous debate
and motivated a long line of new research on the effect of common ownership. An early critique by
Kennedy, O’Brien, Song, and Waehrer (hereinafter KOSW)3 claims that AST’s finding is due to
inferior modeling choices. They claim that when superior empirical models are used, they find no
evidence that common ownership raises airline prices. We lay out challenges to their logic and method
and note that their conclusions have been disproven by more recent structural models by other
Using even stronger language, Dennis et al.5 claim that “Common ownership does not have anti-
competitive effects in the airline industry,” based on empirical specifications that the authors purport
show a lack of robustness of AST’s findings to reasonable alternative choices. As discussed in an
updated review of the literature,6 the lack of robustness that these authors found was driven by errors in
their data construction, and these results have since been withdrawn. But even if the results had been
factually correct, the conclusion drawn would still be unsubstantiated. The absence of evidence does
not imply evidence of absence of anticompetitive effects of common ownership. Hence, these claims,
while spectacular and attention-grabbing, are simply not backed by the authors’ analyses.
Other recent papers motivated by the study by AST make broad claims regarding the scope and
validity of evidence of anticompetitive of common ownership (e.g. Koch et al.,7 Lewellen and Lowry,8
and Yegen9) but do not even empirically investigate the markets AST studied.
This article argues that these critiques of AST generally do not contain evidence to support the
strong claims they are making. Our main theme is that a finding of no anticompetitive effects in one
particular empirical design does not refute evidence of anticompetitive effects found with a different
empirical design, in particular when employed in a different industry or subsample.
We illustrate this point with a discussion focusing on KOSW, as it is one of the two papers directly
aimed at AST and is based on the reasonable premise that endogenous market shares could be polluting
1. Martin C. Schmalz, Common Ownership Concentration and Corporate Conduct, 10 ANNU. REV. FINANC. ECON. 413 (2018)
[hereinafter Schmalz 2018, Common].
2. Jos´e Azar et al., Anti-Competitive Effects of Common Ownership, 73 J. FINANCE 1513 (2018) [hereinafter AST].
3. Pauline Kennedy et al., The Competitive Effects of Common Ownership: Economic Foundations and Empirical Evidence,
SSRN ELECTRON J, July 24, 2017,¼3008331 or [hereinafter
4. Alex Haerang Park & Kyoungwon Seo, Common Ownership and Product Market Competition: Evidence from the U.S.
Airline Industry, 48 KOREAN J. FINANC. STUD. 617 (2019).
5. Patrick J. Dennis et al., Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry, SSRN ELECTRON
J, June 25, 2020,¼3063465 or
6. Martin C. Schmalz, Recent Studies on Common Ownership, Firm Behavior, and Market Outcomes, 66 ANTITRUST BULL.
12 (2021).
7. Andrew Koch et al., Common Ownership and Competition in Product Markets, J. FINANC. ECON. (2020),
8. Katharina Lewellen & Michelle B. Lowry, Does Common Ownership Really Increase Firm Coordination? (Tuck School of
Business Working Paper No. 3336343, July 15, 2020; J. FIN. ECON., forthcoming),¼3336343 or http://

9. Eyub Yegen, Common-Ownership and Portfolio Rebalancing (Proceedings of Paris Dec. 2019 Finance Meeting
EUROFIDAI – ESSEC, Mar. 1, 2019),¼3345779 or

Azar et al.
some of AST’s estimates. Also, in contrast to the broader critiques mentioned above, KOSW’s
empirical setting is identical to AST’s in that they study the very same industry and outcomes as AST
and closely replicate AST’s baseline results. However, as we explain below, their methodological
deviations from AST deserve transparent discussion. Moreover, whereas some aspects of their paper
do drive the debate forward, their empirical choices cannot be regarded as unequivocally superior.
Other papers, by Lewellen and Lowry10 and by Yegen,11 identify problems with one of the broad
empirical approaches employed by AST, namely, using mergers of financial institutions as a source of
exogenous variation in common ownership, and claim that once these problems are fixed, there is no
evidence for...

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