Does Common Ownership Explain Higher Oligopolistic Profits?

Does Common Ownership Explain Higher Oligopolistic Profits?

Edward Rock, Daniel L. Rubinfeld

Series number :

Serial Number: 
528/2020

Date posted :

June 23 2020

Last revised :

November 18 2020
SSRN Share

Keywords

  • Common ownership • 
  • Corporate governance • 
  • index funds • 
  • passive investing • 
  • active funds • 
  • institutional investors • 
  • coordinated effects • 
  • superstar firms • 
  • oligopoly profits

A stylized fact that lurks in the background of the recent literature on common ownership is the parallel increase in the profitability of oligopolistic industries and common ownership. Some have argued that the growth in common ownership has caused the increase in oligopoly profits and have proposed a variety of policy responses.

This paper briefly reviews the available evidence and finds it unconvincing. It then provides an overview of the evidence that concentration and profitability have increased, considers alternative explanations, and suggests that the emergence of “superstar” firms -- and not the growth in common ownership – could be a fundamental driver of the parallel increase in concentration and profitability.

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Authors

Real name:
Daniel L. Rubinfeld