This presentation by James Mancini from the OECD Competition Division was made during the discussion “Common ownership by institutional investors and its impact on competition” held at the 128th meeting of the OECD Competition Committee on 6 December 2017. More papers and presentations on the topic can be found out at oe.cd/21u.

1. 6 December 2017
Presentation to the Competition Committee
James Mancini
OECD Competition Division

2. • For the purposes of this presentation,
common ownership means:
– Minority shareholdings…
– By institutional investors…
– Of several (or all) competing firms in a
concentrated industry simultaneously
2

3. 3
Coordination
• Institutional investors could acting as a “cartel ringmaster” (akin to
the role of an industry association)
• Common ownership could also theoretically reduce incentives to
deviate from a collusive agreement
• He and Huang find commonly-owned firms more likely to engage
in explicit and implicit coordination
However:
• Do oligopolists need an investor in common to collude?
• Do institutional investors have sufficient influence?
• Does common ownership reduce the cost of deviation?

4. 4
Unilateral effects
• It is possible that a price increase (or reduction in quality) could be
unprofitable for a firm but profitable for an institutional investor with
holdings in both the firm and its competitors
• Models have been constructed to show how common ownership
can create a tendency toward joint profit maximisation and
internalising the impact on competitor value of key decisions
However:
• Are there offsetting efficiencies from common ownership?
• Would unilateral effects harm diversified investors with shares
upstream/downstream of the market in question?
• How can institutional investors influence firms to take into account
their portfolio value?

5. 5
Institutional investors
Direct influence Indirect influence
• Voting: an outright majority may
not be necessary to influence
decisions in a beneficial way
o Institutional investors may
vote as a bloc
o Low engagement/
unconcentrated holdings of
other shareholders
• Voice: engagement as the
“carrot” to the voting ‘stick”
• Tacit management incentives:
compensation oriented toward
industry performance
(corroborated by Azar et al)
• Passivity: management not
encouraged to take risks as with
active investors
• BUT: what about fiduciary duty?

6. Use existing
legislation
• Prosecute cartels facilitated by institutional investor like
any other cartel
• Proposal in US – apply Clayton act, allow private and
competition authority action
Enacting hard
limits
• Ban common ownership in a concentrated industry
beyond a certain level
• Exemption for purely passive investors
Establishing
safe harbours
• Provide certainty to investors with a level under which
no competition issues would occur (no effective
influence)
Consider
impact of fund
mergers
• Consider how fund mergers affect the level of common
ownership and influence in portfolio firms

7. 7