The baseline measurement of market concentration—the standard HHI—depends only on market definition and the market shares of all competitors. However, recent research has explored another variable that may be important for characterizing concentration: the extent to which ownership of competitors overlaps (Schmalz forthcoming). If two firms in a market are owned by the same people, those firms likely have less motivation to compete vigorously than would two firms owned by different people.
Figure 4 presents estimates from economists Miguel Antón, Florian Ederer, Mireia Giné, and Martin Schmalz of both the baseline HHI (blue bars) and the increment to HHI that is associated with the authors’ measurement of common ownership in that sector (purple bars) (Antón et al. 2018). The additional concentration that they calculate to be associated with common ownership added about 1,000 to HHI in 1994 and nearly 1,700 to HHI in 2013. In other words, common ownership boosted effective concentration to an increasing degree over time.
Much of this common ownership can be ascribed to two related forces: the rise of passive investing and the general investor desire to diversify equity holdings and thereby minimize risk (Posner, Morton, and Weyl forthcoming). Indeed, BlackRock and Vanguard were among the top 10 shareholders of more than two-thirds of public firms (Antón et al. 2018), and institutional investors have increased their share of U.S. equities from 7 percent in 1950 to 70–80 percent in 2010 (McCahery, Sautner, and Starks 2016). In the banking and airline sectors, large active investment firms such as Berkshire Hathaway sometimes own a large (top five) stake in many firms within the same industry (Azar, Raina, and Schmalz 2016; Azar, Schmalz, and Tecu forthcoming).
Some analysts contest whether index funds or other passive funds should be considered owners, given that the investors they represent are the ultimate holders of the asset. It is also controversial whether institutions’ ownership positions are large enough to provide them with influence over business decisions (Kennedy et al. 2017). More research is needed to understand how to measure common ownership and the impacts of ownership on competition. However, antitrust policymakers are beginning to address at least some forms of common ownership. For example, in response to a proposed merger between Red Ventures Holdco and Bankrate, the Federal Trade Commission (FTC) filed a complaint alleging that two of Red Ventures’ largest shareholders jointly owned a service that directly competed with a subsidiary of Bankrate. The parties were ordered to divest from the subsidiary (FTC 2018).