Miguel Antón, Florian Ederer, Mireia Giné and Martin Schmalz ‘Common Ownership, Competition, and Top Management Incentives’ (2020) ECGI Working Paper Series in Finance 511/2017

The common ownership hypothesis suggests that, when large investors own shares in many firms within the same industry, those firms may have reduced incentives to compete. Empirical contributions document the rising importance of common ownership and provide evidence to support this hypothesis. However, because managers rather than investors control firm operations, scepticism that common ownership affects product market outcomes will be warranted until a mechanism for this process is identified. This has fuelled a vigorous debate on whether existing evidence on common ownership has a plausible causal interpretation. This paper, available here, develops a theoretical model that explains how managerial incentives can serve as a simple and plausible mechanism that links higher common ownership and softer product market competition. Under this model, firm-level variation in common ownership causes variation in managerial incentives across firms as well as variation in product prices, market shares, concentration and output across markets—all without communication between shareholders and firms, coordination between firms, or knowledge of…

José Azar and Xavier Vives on ‘General Equilibrium Oligopoly and Ownership Structure’ (2020) CEPR Discussion Paper No. DP15499

Oligopoly is widespread, and, allegedly, on the rise. Yet macroeconomic models, which focus on monopolistic competition instead because of its analytical tractability, seldom consider oligopoly. A typical limitation of monopolistic competition models is that market concentration plays no role in conditioning competition. Monopolistic competition models are also unable to look into the objective of the oligopolistic firm when there is overlapping ownership due to owners’ diversification. If a firm’s shareholders have holdings in competing firms, they would benefit from high prices through their effect not only on their own profits, but also on the profits of rival firms. This paper, available here, presents a tractable general equilibrium framework in which firms are large and have market power with respect to both products and labour, and in which a firm’s decisions are affected by its ownership structure. This framework characterises the oligopolistic market equilibrium, and then uses it to analyse whether competition intervention is appropriate, and if so how. Section II…

Einer Elhauge ‘The Causal Mechanisms of Horizontal Shareholding’ (2021, forthcoming) Ohio State Law Journal 82

Common shareholding exists when the leading shareholders of different corporations overlap. More than two dozen empirical studies have now confirmed that common shareholding alters corporate behaviour. Ten of those empirical studies have confirmed that horizontal ownership often has anticompetitive effects in concentrated markets. These include five market-level studies, a massive cross-market study of hundreds of consumer goods, two national studies across all industries, a new study of horizontal ownership by venture capitalists, and a new study showing that firm entry into the S&P500 creates an exogenous increase in horizontal shareholding that raises rival stock prices. Despite this, critics have argued that the law should not take any action until we have clearer proof on the causal mechanisms through which common shareholding operates. Some have developed a typology of causal mechanisms, only to argue that each type of mechanism either has not been empirically tested or is implausible. Others go even further and argue that the empirical studies showing that common…

Martin Schmalz ‘Recent studies on common ownership, firm behavior, and market outcomes’ (2021) Antitrust Bulletin 66 (1)

The literature on competitive effects of common ownership has grown at a fast rate in the past two years. This review seeks to give some structure to the latest work in this area by selectively covering a few of the more prominent papers that have emerged over the past couple of years. It concludes that progress in terms of data quality and scope would be the most welcome step regulators could take in order to improve transparency and quality of research on the competitive effects of common ownership. The paper, available here, proceeds by looking at different dimensions of the common ownership debate: Section I looks at the theory of governance mechanisms by which common ownership can cause variation in competitive outcomes. A common feature of the policy discussion on common ownership are demands for more “causal evidence” of how corporate governance mechanisms can cause anticompetitive effects, over and above the evidence the literature has already accumulated. To an economist,…

Karen Geurts and Johannes Van Biesebroeck ‘Employment Growth following Takeovers’ (2019) The Rand Journal of Economics 50(4) 916

This paper, available here, takes a sample of takeovers in Belgium over five years, and estimates their impact on employment growth. It finds that the average merger temporarily reduces employment of the combined entity by −1.4%. However, long-term effects are markedly different. Mergers likely to be motivated by acquiring or defending market power show a stronger and permanent employment reduction of −14%, whereas those motivated by efficiency gains lead to employment expansions of +10%. Section I sets the scene. Existing research provides a range of estimates for the employment effects of mergers, with no consensus having emerged about the predominant effect of mergers on employment. Studies that find a negative effect outnumber those that find a positive effect, but all come with caveats. At the same time, the literature has long noted the potential for efficiency gains from mergers. Acquirers often argue that reduced variable costs can offset market power and lead to lower prices, which in turn can raise…

Massimo Motta and Martin Peitz ‘Removal of Potential Competitors – A Blind Spot of Merger Policy?’ (2020) Competition Law and Policy Debate (6)2 19

Mergers that may look conglomerate or vertical at first glance may in essence be horizontal, inasmuch as they involve the removal of a potential competitor. Indeed, many conglomerate and vertical mergers can be addressed from the perspective of potential competition. Economists have started to look into vertical and conglomerate mergers which can be analysed from this perspective in the pharma and digital sectors; however, the issue is not restricted to these sectors. Merger policy must deal with two issues as regards such mergers: (1) how to make sure that potentially problematic mergers are notified and investigated; and (2) how to assess the social costs and benefits of such mergers. This paper, available here, looks at both these issues. Second II looks at the theory and evidence of mergers to remove potential competitors. Large firms have been taking over dozens of small technology firms which have not yet marketed their products, or that were at an initial phase of rollout. Such…

Nicolas Petit and Dirk Auer ‘CK Telecoms v Commission: The Maturation of the Economic Approach in Competition Case Law’ (2020) Journal of European Competition Law & Practice 11(5–6) 225

Over the last few years, the EU courts have produced several rulings that envision a symbiotic relation between competition law and economics. The judgment of the General Court (‘GC’) in CK Telecoms UK Investments v Commission (‘CK Telecoms v Commission’) is the latest illustration of this judicial trend. The present paper, available here, argues that the concrete message of CK Telecoms v Commission is simple. The Court stresses that not all market power effects from mergers come under legal scrutiny. Only mergers leading to substantial market power effects deserve remediation. CK Telecoms v Commission also sits broadly within the European tradition of competition law. The case formulates a structured rule for the assessment of unilateral effects in merger cases, in line with the usual approach of European case-law. Section II looks at the requirement that anticompetitive effects must be substantial. Economic theory is chiefly concerned with a specific class of market power that cannot be dissipated by competitive forces in…

Nicholas Levy ‘Judicial review of merger decisions: An overview of EU and national case law’ (2019) Concurrences Special Issue Mergers Judicial Review

When the European Merger Control Regulation (EMCR) was adopted, there was uncertainty about whether the EU Courts would act as an effective check on the Commission’s enforcement, and exert discipline on its decisions in the same way as U.S. courts discipline the U.S. federal agencies’ determinations of whether mergers should be allowed to proceed. There was also uncertainty as to the scope for timely judicial review. History has proven the sceptics wrong. The EU Courts have played a highly significant role in shaping the law and holding the Commission to account. Although the EU Courts have recognised that judicial deference is embedded in the EU system of merger control, they have nevertheless been ready to subject Commission decisions to careful and comprehensive review. The courts have also protected merging companies’ rights of defence, striking down decisions that have been insufficiently substantiated or based on findings inadequately presented to the merging parties during the administrative process. The EU Courts have also…

Bill Kovacic ‘Competition Policy Retrospective: The Formation of the United Launch Alliance and the Ascent of SpaceX’ (2020) George Mason Law Review

In May 2005, Boeing and Lockheed Martin announced plans to form the United Launch Alliance (ULA), a joint venture which combined the only two suppliers of medium-to-heavy national security related launch services to the U.S. government. With input from the US Department of Defence (DOD), the FTC cleared the transaction. The FTC’s approval rested on two assumptions: that the efficiencies claimed by the merging parties were significant, and that the DOD and the NASA would use best efforts to facilitate entry into the launch services sector. This article, available here, examines the merger clearance decision and assesses the assumptions supporting this 2006 decision in light of subsequent experience. In short, those assumptions proved justified. ULA thus far has met the reliability expectations that guided the analysis of the DOD and the FTC. From its first days of operation through July 30 2020, ULA has made 140 launches without a failure. The venture has achieved and surpassed the reliability goals that…

Mark Glick, Catherine Ruetschlin and Darren Bush ‘Big Tech’s Buying Spree and The Failed Ideology Of Competition Law’ (forthcoming, Hastings Law Journal)

Big Tech is on a buying spree. Companies like Apple, Google, Facebook, and Amazon are gobbling up smaller companies at an unprecedented pace. Google has acquired 270 companies since 2001, including Android, YouTube, and Waze. Microsoft has made over 100 acquisitions in the last ten years, including acquisitions of Skype, Nokia Devices, LinkedIn and GitHub. Amazon has made a similar number of acquisitions. Facebook has acquired ninety companies. The law of competition is not ready for Big Tech’s endless appetite. This article, available here, shows how the extraordinary burden of proof required to prohibit a merger under the potential competition doctrine hobbles antitrust law and policy. It illustrates this problem with a close study of Facebook. The article assembles a database of Facebook’s completed acquisitions—ninety in all—and shows how the “potential competition” doctrine renders competition law entirely impotent to protect the consumer interest in this space. It further argues that, with à simple structural presumption, the Federal Trade Commission (FTC)…