Common ownership

Research

• The anti-competitive effects of common ownership in airlines

  Azar, Schmalz, and Tecu (2018, “AST”): “”

  • Giá máy bắn cáCommon ownership (“CO”, airlines being more jointly held by the same asset managers) leads to airline ticket prices being 3-7% higher than the would be under separate ownership

  • Uses “MHHI Delta” measure of O’Brien and Salop (2000) to gauge CO. This measures if an investor holds large stakes in multiple companies with high market shares

  • Giá máy bắn cáTo identify causation, the authors study BlackRock’s acquisition of Barclays Global Investors as a shock to CO. They argue that this merger increased CO, as BlackRock’s stake in each airline rose. Ticket prices also increased

• Methodological concerns with the above study

  Dennis, Gerardi, and Schenone (2018): “Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry”

  • MHHI Delta captures not only common ownership by investors, but is also distorted by the market shares of airlines. The positive correlation between MHHI Delta and ticket prices stems entirely from the airline market share component, and not the investor common ownership component

  • Thus, any anti-competitive pressures on ticket prices arise due to lack of competition in the airline industry, rather than the investment management industry

  • Giá máy bắn cáAST failed to take into account that many airlines had filed for bankruptcy. Thus, management’s fiduciary duty was primarily towards creditors, so shareholders didn’t have effective control. After accounting for this, the results are substantially weaker

  • Giá máy bắn cáAST lump all tickets together, ignoring the difference between business and economy flights, and flights with and without stops. When applying the standard filters in the literature (e.g. focusing on direct economy flights), the results are substantially weaker

• Incorrect measure of common ownership

  Gilje, Gormley, and Levit (2019): “”

  • An investor’s stake in a firm is an incomplete measure of her incentives to monitor it. Her investor’s time is limited – thus, even if she has a large stake in a firm, she may devote little monitoring effort if she has large stakes in many other firms

  • AST’s use of the percentage equity stake essentially ignores all other firms within the investor’s portfolio. When this is taken into account, the results disappear

  • Giá máy bắn cáAST assume that BlackRock’s acquisition of BGI increased CO because its stakes in each airline rose. However, its stakes in many other firms rose as well, so BlackRock’s incentives to monitor airlines actually fell in many cases, which further questions the interpretation of AST’s findings

• Incorrect application of the common ownership theory

  Kennedy, O’Brien, Song, and Waehrer (2017): “”

  • Authors argue that AST misuse the MHHI Delta proposed in O’Brien and Salop (2000, “OS”)

  • The OS theory stresses that the MHHI Delta is an outcome, not a driver. Rather than MHHI Delta driving increases in prices, other factors may drive both the MHHI Delta and also prices. When conducting empirical tests tightly linked to the theory, the results disappear.

• Results may be driven by the financial crisis

  Lewellen and Lowry (2019): “”

  • Giá máy bắn cáThe BlackRock-BGI merger took place during the financial crisis, so any results could be due to the financial crisis’s effect on the airline industry

  • To identify causal effects, the authors study mergers of other financial institutions, many of which occurred outside the crisis. Using these mergers, they find no evidence that increases in CO raised cooperation. They also show that the Blackrock-BGI merger can produce spurious evidence of such improve

• Results do not extend to other industries

  Koch, Panayides, and Thomas (2019): “”

  • While AST consider a single, highly-regulated (and thus potentially atypical) industry, the authors study all industries

  • CO is neither positively associated with industry profitability or output prices, nor negatively correlated with measures of non-price competition, as would be the case if CO had anti-competitive effects

• The anti-competitive effects of common ownership in banking

  Azar, Raina, and Schmalz (2019): “”

  • CO is associated with lower branch-level deposit account interest rates, higher maintenance fees, and lower fee thresholds

  • Giá máy bắn cáResults are robust to focusing exclusively on the increase in bank ownership caused by the growth of index funds

• The effects of common ownership on managerial incentives

  Anton, Ederer, Gine, and Schmalz (2018): “”

  • Giá máy bắn cáCO is associated with weaker managerial incentives to improve own-firm performance

• Does common ownership really increase firm coordination?

  Lewellen and Lowry (2019): “”

  • The BlackRock-BGI merger took place during the financial crisis, so any results could be due to the financial crisis’s effect on the airline industry

     

  • To identify causal effects, the authors study mergers of other financial institutions, many of which occurred outside the crisis. Using these mergers, they find no evidence that increases in CO raised cooperation. They also show that the Blackrock-BGI merger can produce spurious evidence of such improve