Endogenous Choice of Stakes Under Common Ownership

Endogenous Choice of Stakes Under Common Ownership

C. Scott Hemphill, Marcel Kahan

Series number :

Serial Number: 
805/2021

Date posted :

December 14 2021

Last revised :

December 14 2021
SSRN Share

Keywords

  • Antitrust • 
  • common shareholding • 
  • Common ownership • 
  • collusion • 
  • horizontal • 
  • HHI • 
  • institutional investors • 
  • MHHI • 
  • modified Herfindahl-Hirschman Index • 
  • shareholdings • 
  • Blackrock • 
  • Vanguard • 
  • State Street

We present a simple model of common ownership in which an investor chooses its stake in competing firms in light of the effects on firm behavior and firm profits. Two firms compete in Cournot duopoly, and ownership affects a firm’s objective function in the manner posited by Bresnahan & Salop (1986) and Salop & O’Brien (2000).

We show that an investor with equal stakes in both firms—a so-called common concentrated owner (CCO)—places a greater value on an additional share of a firm, compared to atomistic owners. The same is true of a noncommon concentrated owner (NCO) with a stake in just one firm. Both the CCO and the NCOs thus have incentives to acquire any shares held by atomistic owners. Our model yields two testable empirical predictions. First, equilibrium ownership structure in noncompetitive industries should be systematically more concentrated than in competitive industries. Second, within the investment portfolio of institutional investors, holdings in noncompetitive industries should be systematically more concentrated than holdings in competitive industries.

Authors

Real name:
C. Scott Hemphill