![]() This hypothesis is an old idea, with a history dating back to the 1980s. ![]() In “ The Common Ownership Hypothesis: Theory and Evidence” (PDF), Matthew Backus, Christopher Conlon, and Michael Sinkinson survey recent literature examining the relationship between ownership of firms in the financial space and the strategic decisions made by firms in product markets, paying particular regard to the common ownership hypothesis. If true, the implications of this idea are enormous: if firms place positive weight on rivals’ profits when making strategic decisions, publicly traded firms may have incentives to soften competition, resulting in harm to consumers. The common ownership hypothesis asks: when large investors own shares in many firms within the same industry, do those firms have an incentive to soften competition by producing fewer units, raising prices, reducing investment, innovating less, or limiting entry into new markets? The core of the question is simple: firms maximize shareholder value, but shareholders hold stakes in competitors thus, firms may want to maximize some combination of their own profits and their competitors’ profits to maximize the value of their investors’ portfolios. ![]() ![]() Assistant Professor of Economics - Yale University ![]()
0 Comments
Leave a Reply. |