Niamh Dunne ‘Dispensing with Indispensability’ (2020) Journal of Competition Law & Economics 16(1) 74

‘Indispensability’ is the central concept underpinning the treatment of refusal to deal claims under EU competition law. Firms can normally refuse to share their infrastructure with would-be competitors, to supply an input, or to licence their intellectual property. Where the requested access is, however, deemed indispensable to effective competition in an adjacent market—an exceptional circumstance—dominant undertakings may find their default market freedom constrained, the rationale being that control of such an essential facility renders any refusal to deal disproportionately harmful. However, the conventional wisdom that instances of refusal to deal constitute an abuse only in the presence of indispensability has been challenged from multiple directions. This article, available here, surveys the departures from the orthodoxy that can be found in the jurisprudence. Section II introduces refusal to supply as an antitrust theory of harm. It has long been acknowledged that Article 102 TFEU may, in certain instances, proscribe refusals to contract with rivals by dominant undertakings. Yet refusal to deal…

Roman Inderst and Stefan Thomas ‘Common Ownership and Mergers between Portfolio Companies’ (2019) World Competition 42(4) 551

The debate on the competitive risks of common ownership has focused on whether passive index investments soften competition among portfolio companies. If this were the case, it would raise the question how it would impact the analysis of horizontal mergers between portfolio companies. The European Commission has, in Dow/DuPont and in Bayer/Monsanto, allowed the possibility that the mere existence of common ownership can contribute to a competitive impediment emerging from a horizontal merger between portfolio companies. This paper, available here, argues that it should not be presumed that common ownership in itself increases anticompetitive effects of a merger between portfolio companies. Instead, this would depend on the facts of the case – from both a price and innovation perspective. Even if it were to be assumed that common ownership has an inherent propensity to impede competition, it cannot be concluded from this that a merger between commonly owned portfolio companies has a larger detrimental effect on prices or innovation activity…

Alec Burnside and Adam Kidane ‘Common Ownership: A EU Perspective’ (2020) Journal of Antitrust Enforcement 8 456

This article, available here, examines common ownership through a European lens. The article considers whether the theory of harm flowing from common ownership is sufficiently robust to provide a basis for enforcement, and (if so) whether current European Union competition law tools could be used to that end. The authors argue that it is premature to draw any conclusions as to whether common ownership concerns justify competition enforcement. In any event, levels of common ownership seem to be lower in Europe than in the US, so it is unclear whether intervention would be justified in the EU even if it were in the US. Until a better understanding of the underlying facts and a broad academic consensus emerge, reform prescriptions that have been advanced will remain a solution in search of a problem. Section II describes the common ownership theory of harm. The authors begin by distinguishing between cross-shareholding and common ownership. Cross-ownership arises where one firm acquires a non-controlling…

Eric Posner ‘Policy Implications of the Common Ownership Debate’ (2021) University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 922

The debate over common ownership has raised questions about what, if any, policy responses are appropriate when common owners reduce competition in product markets. This paper, available here, reviews the literature on policy responses and evaluates various reform proposals in light of recent empirical and theoretical developments. A first section frames the discussion. Common ownership theories of harm have attracted their fair share of criticisms. One group of criticisms centred around the question of “mechanism”: what was the mechanism with which institutional investors compelled portfolio firms to raise prices and reduce output? Moreover, some researchers have found statistical or anecdotal evidence that common ownership produces social benefits by internalising positive externalities across firms, like those that are due to research. Policymakers must therefore confront three questions. First, is the time ripe for intervention or should they wait for more academic work to create a larger consensus among independent academics about the empirical effects of common ownership? Second, if or when…

Einer Elhauge ‘How Horizontal Shareholding Harms Our Economy—And Why Antitrust Law Can Fix It’ (2020) 10 Harvard Business Law Review 10(2) 207

This article, available here, argues that new economic proofs and empirical evidence show that horizontal shareholding in concentrated markets often has anticompetitive effect. The piece also develops new legal theories for tackling the problem of horizontal shareholding. When horizontal shareholding has anticompetitive effects, it is illegal not only under Clayton Act §7, but also under Sherman Act §1. Anticompetitive horizontal shareholding also constitutes an illegal agreement or concerted practice under EU Treaty Article 101, as well as an abuse of collective dominance under Article 102. Part I describes how new proofs and empirical evidence have confirmed that high levels of horizontal shareholding in concentrated product markets can have anticompetitive effects, even when each individual horizontal shareholder has a minority stake. The last few years have seen a deluge of studies – involving economic modelling and empirical research – demonstrating how overlapping horizontal shareholding can lead to anticompetitive effect, even when each individual horizontal shareholder has a minority stake and without…

Anna Tzanaki ‘Varieties and Mechanisms of Common Ownership: A Calibration Exercise for Competition Policy’ (forthcoming)

Minority shareholdings have been on the regulatory agenda of competition authorities for some time. Recent empirical studies, however, draw attention to a new, thought provoking theory of harm: common ownership by institutional investors holding small, parallel equity positions in several competing firms within concentrated industries. The European Commission has already made use of the common ownership theory in its merger enforcement practice, while the US antitrust agencies have proposed amending their merger control reporting thresholds to account for aggregate institutional holdings. This paper, available here, reviews common ownership from the perspective of merger control. It starts with a novel distinction between two types of common ownership – ‘concentrated’, which broadly fits within existing concepts in merger control; and ‘diffuse’, which broadly encompasses the instances of common ownership that avoid merger scrutiny in jurisdictions that rely on control-based thresholds. It is this latter form of common ownership that preoccupies the contemporary debate, and falls through the gaps of competition law. The…

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,…