Common 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
To 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
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
AST 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
AST 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
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
AST 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
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.
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
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 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
- The evidence for the anti-competitive effects of common ownership is weaker than frequently portrayed
- But there may be other important effects of common ownership, such as increasing proxy advisor influence
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