Azar, Schmalz & Tecu (2018): Anticompetitive Effects of Common Ownership

Overview

"Anticompetitive Effects of Common Ownership" is a paper by José Azar, Martin C. Schmalz, and Isabel Tecu, published in The Journal of Finance, volume 73, issue 4 (2018), pp. 1513–1565.[1] Using panel data on the US airline industry, the authors construct a Modified Herfindahl-Hirschman Index (MHHI) that accounts for cross-ownership by large diversified institutional investors (chiefly index funds), and find that route-level increases in this common-ownership-adjusted concentration measure are associated with statistically significant increases in ticket prices. In the paper's panel regressions, moving across the interquartile range of common-ownership concentration (MHHI delta) raises route fares by about 4.3%, and moving from the 10th to the 90th percentile by about 8.2%; the paper's instrumental-variable estimate (exploiting the 2009 BlackRock–BGI acquisition) implies that ticket prices are "about 10%-12% higher because of common ownership alone, compared to a counterfactual world in which firms are separately owned."[1] The authors' own subsequent summary states airfares are "higher, likely in the range of 3-12 percent, due to common ownership."[2] The paper argues these effects are an order of magnitude larger than the concentration increases antitrust regulators normally treat as competitively significant.[1]

This is the empirical anchor for Eric Posner and Glen Weyl's treatment of horizontal shareholding in Radical Markets (2018, Ch. 4), which cites the study's airline findings as the leading evidence that diversified common ownership functions as a rent-extraction mechanism warranting an antitrust-style remedy.[3]

Significance and Contestation

On the wiki's rent gradient this paper sits at the contested monopoly/financialization frontier, well outside the airtight land case. The finding has been actively disputed in the literature that followed: several later papers, using different identification strategies or additional years of data, report smaller or statistically insignificant price effects, and the mechanism by which passive index-fund managers would translate diversified stakes into coordinated route-level pricing remains disputed among economists — a point the wiki's horizontal-shareholding page discusses at length. This paper should be read as the originating, most-cited study in an ongoing empirical debate, not as a settled result.

See Also

• Horizontal Shareholding (Common Ownership) — the concept page for which this paper is the primary empirical source
• Radical Markets — Posner and Weyl's book, which cites this paper's findings in Ch. 4
• Rent-Seeking — the broader category of value capture without production this paper's finding is argued to exemplify
• Land Monopoly — the classical, airtight case of rent from exclusive control that this contested finding is sometimes compared to, but should not be treated as equally certain

Sources

1. José Azar, Martin C. Schmalz & Isabel Tecu, "Anticompetitive Effects of Common Ownership," The Journal of Finance 73(4), 2018, pp. 1513–1565, DOI: 10.1111/jofi.12698 — used for the paper's core claim (MHHI-based measure of common ownership and its association with airline prices), its antitrust-threshold framing, and the specific price-effect estimates. The point estimates above were verified this session against the freely available IESE Business School working-paper version (identical text): the panel results ("going from the 25th to the 75th percentile increases prices by 4.3%… Going from the 10th to the 90th percentile… an 8.2% increase in fares") and the instrumental-variable counterfactual ("ticket prices are about 10%-12% higher because of common ownership alone, compared to a counterfactual world in which firms are separately owned"). Free IESE WP-1169-E PDF · SSRN version · Journal of Finance
2. José Azar, Martin Schmalz & Isabel Tecu, "Why Common Ownership Creates Antitrust Risks," CPI Antitrust Chronicle (June 2017) — the authors' own summary of the airlines paper, stating "airfares are higher, likely in the range of 3-12 percent, due to common ownership." Verified verbatim this session. CPI PDF
3. Eric A. Posner & E. Glen Weyl, Radical Markets: Uprooting Capitalism and Democracy for a Just Society (Princeton University Press, 2018), Ch. 4 ("Dismembering the Octopus") — discovery source; cites this paper's airline findings as the evidentiary basis for the "Disruptive Antitrust" proposal. wiki book page