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5 Things You Need To Know About The Debate: Whether “Common Ownership” Of Competitors By Institutional Investors Raises Antitrust Concerns

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While public perception may be that common ownership and its impact on competition law remains a theoretical debate and economic brainteaser, the reality is that it already found its way into European Commission merger decisions and triggered a hot debate in the US on whether regulatory remedies are needed. Here are five things you need to know about the common ownership debate.

What is the issue and where is it coming from?

Common ownership is the parallel ownership of stock in competing companies (the “portfolio companies”) by one or more investors, where none of the stockholdings is large enough to give the owner control (or “competitively significant influence” under German law) of any of those companies. This structure leads to (indirect) links between various players in a given industry.

It is not the same as “cross-ownership” (also called “partial ownership”), i.e., the (direct) ownership of stock in one competitor by another competitor. Nevertheless, the well-known antitrust concerns regarding cross-ownership of stocks in a competitor are at the origin of the debate of whether antitrust concerns arise from common ownership. Indeed, it is well-recognized in enforcement practice and legal and economic literature that cross-ownership by one competitor of another can potentially have anticompetitive effects, due to (i) reduced incentives of the acquirer to compete with the target, (ii) the acquirer’s potential to influence the target’s strategy or conduct, and/or (iii) access to competitively sensitive information. It is therefore not uncommon for remedies in mergers to require an acquirer to divest (or at least reduce) a minority shareholding in a competitor of the merging parties.

It has been argued that common ownership raises similar concerns. In essence, the voiced concerns are based on the premise that when an investor owns equity in multiple competing firms in an industry, not only the investor, but also the management of the competing portfolio firms may have the incentive to maximize the investor’s total equity portfolio profits, rather than just the profits of the individual company that they are leading. These incentives and the resulting conduct will lessen competition in the industry compared with an industry without common shareholders. And there is no accepted “safe harbor” shareholding threshold (e.g., 10% ownership) below which such concerns would not arise.

Three main academic papers are at the center of the debate: a paper on the airline industry (which triggered the debate), one on the banking industry, and one on executive compensation. Azar, Schmalz and Tecu’s study on common ownership in the airline industry estimates an average ticket price increase of 3–7% compared with separate ownership[1]. In their paper addressing the effect of common ownership in the banking industry, Azar, Raina and Schmalz found that common ownership of banks leads to an increase of fees for banking deposit services as well as higher minimum account balance requirements, and lower interest rates to savers[2]. Anton, Ederer, Gine and Schmalz suggest in their paper on executive compensation that common ownership has led to executive compensation packages that reward management more for the success of the industry as a whole than for their own firm’s success[3].

On this basis, in particular Elhauge and E. Posner/Scott Morton/Weyl[4] have called for antitrust action, including (i) that acquisitions of minority shareholdings in “concentrated markets” should require merger control (filings and) review, (ii) regulatory approaches to limit common ownership either by limiting the amount of stock (e.g., to not more than 1%) or the number of companies in which institutional investors are allowed to acquire stock, and (iii) tighter corporate governance rules for institutional investors. Elhauge goes as far as saying that common shareholdings are unlawful under the antitrust laws, and called it on twitter the “greatest anticompetitive threat of our times”[5].

As common ownership and its potential impact on competition law are still some kind of “Pandora’s box”, the attempt to investigate the issue empirically is per se appreciated. However, from an empirical perspective, the papers’ evidential value have been criticized heftily both regarding their empirical and theoretical foundations, due to, inter alia, inconsistencies in the data and counter-studies that failed at replicating the outcomes[6]. Critics have also identified shortcomings in the applied methodology, and claimed that the studies failed to prove causation between common ownership and higher prices – at best, they proved correlation. On the legal and economic side, the common opinion emerging amongst critics is that the studies are based on unfounded and unsound factual and behavioral assumptions (see next section).

What exactly is the theory?

In essence, the underlying theory is that when an investor owns equity in multiple competing companies within an industry or market, these companies’ management may have the incentive to maximize the investor’s total equity portfolio profits resulting in reduced competition between competitors.

In other words, the advocates of the theory argue that the anticompetitive effects of cross-ownership arise more or less in the same way in common ownership situations. Accordingly, the European Commission found in Dow/DuPont: “The economic literature show that firms’ incentives to increase prices increase with partial ownership of competitors”, and this literature“applies to the case of common shareholders”, and “[t]he economic literature provides empirical evidence consistent with common shareholders having a negative impact on price competition.” [7]

This idea led to several fragmented theories of harm, but the mechanics and the actual impact on competition remain unclear.

According to the most basic theory, management of portfolio companies may unilaterally decide to compete less vigorously with their competitors to maximize industry profit and please their common investors. This theory is obviously based on the model of cross-ownership. While it is long-standing consensus that cross-ownership may have the anticompetitive effects described above, given that the target’s success affects the investor’s own business and the value of its stake in the target directly, and/or the investor may be able to influence the target’s competitive behavior directly, the same does not per se apply to common ownership.

It seems obvious that if an investor holds minority stakes in several competitors, the investor is interested in maximizing the value and returns of its investment of its entire portfolio, not only that of a single firm in which it is invested. That could indicate the investor would tend to be interested in less competition between its portfolio companies, because that would tend to yield higher profits, and thereby increase dividend payments and the value of the investor’s stakes. Therefore, the investor could have an incentive to influence each portfolio company in a way that would safeguard less competitive intensity between them. From the investor’s perspective, this would seem like a unilateral effect.

From the portfolio companies’ perspective, however, one cannot simply assume they have a unilateral incentive to compete less with their rivals, just because some of them may be reasonably “co-sanguine”. Given the diversity of investors and the sizes of their stakes and investment strategies, even where there is a substantial degree of common ownership, the management of the portfolio companies could only be incentivized to compete less vigorously if it can (i) easily identify which group of common investors has common interests and how those would translate into concrete competitive action, (ii) be reasonably certain that their rivals also understand the interests and actions to be taken in the same way – or that the investors will communicate those wishes to all portfolio companies, (iii) determine whether all rivals in fact behave in parallel ways on the market, or whether there are “cheaters” (market transparency), (iv) effectively sanction cheaters, and (v) will not be disciplined by other competitors outside the common ownership group, or by customers. In other words, the portfolio companies will not alter their behavior if they cannot be sure their rivals will play along, which would seem to be akin to coordinated effects.

Already point (i) seems to be a stretch where the portfolio companies do not simply sell commodities and compete exclusively on price. For example, in agrochemical markets, it would be commercial suicide even for a monopolist not to keep investing into R&D, because products become obsolete over time due to regulation, resistance, and generic competition. Nobody has offered a plausible mechanism by which the portfolio companies could reach an equilibrium on competing less intensely on R&D without risking their own companies’ entire commercial future. So anticompetitive effects are only conceivable if investors actually do influence the portfolio companies’ behavior, at a minimum by explaining their concrete competitive preferences to them.

Therefore, on (ii), at a high level, commentators and the European Commission have argued that investors can and say they do influence management – but we have not seen evidence of attempts to persuade management to engage or omit certain concrete competitive actions. Furthermore, at least two main questions remain unsolved and weaken this theory:

First, is it even possible for institutional investors with shareholdings typically amounting to less than 10% to influence the managements’ competitive behavior? While BlackRock, Vanguard, etc. themselves admit to engage in direct contacts with their portfolio companies’ management and to exert their voting rights[8], it remains unclear which topics and issues are actually discussed and whether these have an impact on the company’s competitive behavior. Further, it seems highly doubtful that large asset managers with stock in hundreds or thousands of companies (e.g., in 2017, BlackRock had stock of 5% or more in around 2,600 companies worldwide), often consisting of several different individual funds with different investment strategies, actually have the capacity to engage with their portfolio companies’ management on specific competitive actions. Hence, the OECD found that “despite their public declarations, it is also not clear whether institutional investors choose to exert the full range of influence that may theoretically be at their disposal”[9].

Second, do institutional investors that typically hold stock in entire industries – including upstream and downstream companies – even have the incentive to maximize profit at one industry level while simultaneously harming their own investments in suppliers and/or customers? Imagine, as a theoretical example, common ownership in the steel industry and the investors also holding stakes in companies using steel, such as automotive OEMs. The latter would suffer from less competition in the steel industry. Further, and especially with regard to large passive index funds that compete on low management fees and accuracy of tracking an index, distorting competition within a market is inconsistent with their investment thesis.

As regards (iii), i.e., market transparency, the assumption that the mere existence of common investors increases transparency is not convincing: how would competing portfolio companies benefit from their common investors’ insight into their rival’s business activities? The only plausible explanation would be that common investors use their increased insight to influence the various companies’ management and lessen competition, but as described above, this assumption is not persuasive, and actual proof would be required to rely on this limb of the theory. To achieve this outcome would require the common investor to ensure the portfolio companies coordinated, which would raise clear hub-and-spoke antitrust issues (see further below). This would be a clear competition issue, with which no one could take issue, but would require evidence.

Not to forget, management often have a financial interest in the companies they work for, as their compensation can be directly related to growing market share or sales. In those cases, they will have incentives to ensure that their company does best relative to rivals irrespective of any (alleged) influence by common shareholders.

In summary, none of these theories fit the actual competitive landscape and complex market structures in most industries. They are designed for theoretical and static scenarios and do not take into account the numerous factors that (potentially) affect the competitive landscape, such as: a high number of diversified investors, different amounts of stock and means of influence, market players on various market levels, differing interests on the investors’ and competitors’ sides, etc. Furthermore, the theories rely on numerous per se assumptions that are neither empirically proven nor persuasive.

How does the issue come into play in antitrust practice?

While the widespread perception seems to be that common ownership has “some kind of negative impact”, as shown above, the discussion lacks a clear-cut theory of harm or structural consensus. Furthermore, it remains unclear (i) whether it is a merger control problem or rather an issue under Article 101 TFEU, and (ii) if it is a merger control issue, whether it should be dealt with when investors acquire minority shareholdings or when portfolio companies merge with competitors.

As regards merger control at the investing level, most merger control regimes do not capture minority acquisitions below the level of control or at least substantially below 25%. Even in Germany, it would seem to be a stretch to consider the acquisition of stakes (typically) between 0.5 and 7% as such, without board representation or the like, and without controlling a portfolio company active in the same, an upstream/downstream or a market closely neighboring to the target’s market, as awarding competitive significant influence. The US merger control regime currently has the “solely for investment exception” under the Clayton Act. However, as Elhauge requests, US antitrust agencies could pursue future common ownership investments under a Clayton provision that prohibits “any stock acquisition that leads to anticompetitive impact.”[10] While senior US officials have acknowledged that “real problems certainly can arise when a significant shareholder actively encourages competing firms to coordinate their conduct rather than compete against each other as they otherwise would in the ordinary course of business,”[11] their focus has been on Section 1 of the Sherman Act and whether common ownership might lead to agreements to improperly share competitively sensitive information, allocate markets, or fail to compete.[12] Even then the DOJ has signaled that it remains unconvinced of the need for enforcement action, instead indicating only that the agency would continue to examine the potential impacts that ownership might have on competition.

Therefore, going forward, the current discussion will probably have (and as will be shown below, already has) increased impact on mergers between portfolio companies. There are two triggering points: First, it may well be that mergers of competing companies in industries with common investors will be blocked at lower “thresholds” than previously based on the theory that the portfolio companies’ market shares alone tend to underestimate concentration in the industry and hence overestimate the existing level of competition, and that the remaining competitors will abstain from vigorous competition due to common investors. However, the question remains, whether the merger makes the competitive situation worse. While a horizontal merger may lead to higher concentration at the portfolio companies’ level, it may increase or decrease the symmetry in common ownership.

Second, where competition authorities require divestitures for merger clearance, they need to consider common ownership also of the divestiture buyer, and hence its independence (as discussed in Bayer/Monsanto[13], see below).

Although it is still too early to predict, common ownership and the underlying theories of harm could also become subject to scrutiny under Article 101 TFEU or Section 1 Sherman Act. Agencies may consider investigating whether there are communications between the investors to align their interests and actions toward the portfolio companies’ managements, or whether the portfolio companies communicate indirectly with each other via their common investors. Needless to say this would require evidence of communication and also conduct that indicates an anticompetitive agreement or concerted practice, which seems far-fetched based on the currently available studies and information.

As regards the US, the current debate could even lead to regulatory approaches to limit common ownership structures. Advocates of such remedy, such as Posner/Scott Morton/Weyl[14], claim either to limit the amount of stock, e.g., to no more than 1% of the total size of an industry or company, or to limit the number of companies in which institutional investors are allowed to acquire stock.

Is there already case-law on the issue?

Case-law regarding common ownership is relatively limited, given that the debate is still at a very early stage.

However, in 2016, US investment company ValueAct entered into a settlement agreement with the US Department of Justice and paid USD 11 million to settle allegations that (i) ValueAct failed to submit a filing under the Hart-Scott-Rodino Act for its minority investments in Baker Hughes and Halliburton (which were at the time planning to merge) and (ii) it attempted to influence certain business decisions related to the Baker Hughes/Halliburton merger. Inter alia, ValueAct used its position as a major shareholder to obtain access to the parties’ management, engaged in private conversations with senior executives to gather information about the companies and the merger, and tried to improve the chances to complete the Baker Hughes/Halliburton merger by influencing executives. The DOJ found that “ValueAct was not entitled to avoid the HSR requirements by claiming to be a passive investor, while at the same time injecting itself in this manner” and rejected the “solely for investment exception.”[15]

Meanwhile, the European Commission picked up the issue in two recent agricultural merger decisions, i.e., Dow/DuPont and Bayer/Monsanto.

In Dow/DuPont (2017), the Commission dedicated a long theoretical Annex to the “effects of common shareholding on market shares and concentration measures”[16] to assess whether and how common ownership in the agrochemicals sector influenced the remaining competitors’ incentive to fill the (alleged) gap of innovation the merger was deemed to cause. The Commission came to the conclusion that the theory of harm as advocated in literature was sound, but did not conclude a case-specific assessment of control weights. Indeed, the Commission did not find that shareholders had influenced the companies’ management; the only thing they found was “that large shareholders have a privileged access to the companies’ management and can, therefore, share their views and have the opportunity to shape the companies’ management’s incentives accordingly”.[17] Based on this assumption, the Commission used common shareholding in the agrochemicals industry “as an element of context in the appreciation of any significant impediment to effective competition”[18] and found that the remaining competitors would have less incentive to engage in vigorous innovation competition: “[T]he decision taken by one firm, today, to increase innovation competition has a downward impact on its current profits and is also likely to have a downward impact on the (expected future) profits of its competitors. This, in turn, will negatively affect the value of the portfolio of shareholders who hold positions in this firm and in its competitors. Therefore, as for current price competition, the presence of significant common shareholding is likely to negatively affect the benefits of innovation competition for firms subject to this common shareholding.”[19]

Notably, the Commission came to a number of additional broad and far-reaching unqualified conclusions that will probably have an important impact on future merger decisions – at least until they are challenged at court. For example, the Commission found that “[t]he economic literature provides empirical evidence showing that “passive” investors are active owners”[20]; “[t]he economic literature show that firms’ incentives to increase prices increase with partial ownership of competitors”[21] and that “[t]he economic literature on partial ownership applies to the case of common shareholders.”[22]

In its Bayer/Monsanto decision (2018), the Commission referred to Dow/DuPont but went one step further and speculated that “[i]n a hypothetical scenario, the 23 common shareholders of DowDuPont and Monsanto that have a total portfolio value in all firms of EUR 1 000 million or more could decide to vote in a coordinated manner in a view to maximizing the value of their portfolio in the seeds and traits, and crop protection industry.”[23] This was entirely theoretical and the Commission did not find any evidence of actual influence on the companies’ competitive conduct.

Interestingly, as regards BASF’s independence as a suitable remedy buyer, the Commission found “that the debate regarding common shareholdings is relatively recent and not yet entirely settled”[24] and came to the conclusion that the remedy transaction would not increase the level of common ownership significantly. Even though this conclusion is appreciated with regard to the practicability of divestiture proceedings, it remains unclear why the Commission did not address the apparent inconsistency of finding issues with common ownership and the investors’ likely influence on the portfolio companies when assessing whether the main transaction impeded competition, but then found that despite common ownership, the divestiture buyers FMC (in Dow/DuPont) and BASF (in Bayer/Monsanto) were sufficiently independent. (The Commission had also accepted Merit Medical as independent divestiture buyer in its BD/Bard decision (2017)[25] despite the fact that BlackRock and Vanguard had shareholdings exceeding 5% in each of the parties to the transaction and the divestiture buyer.)

What will the near-term future bring?

While the US agencies initially rejected “to make any changes to their policies or practices”[26], the debate heated up and led to a recent FTC Hearing in December 2018[27] and reactions by investors and index providers such as BlackRock[28], State Street[29], and S&P Dow Jones[30]. In parallel, claims for increased merger regulation in “concentrated industries”, regulatory approaches regarding limited investing opportunities, and/or revised corporate governance structures came up. While these measures would not only decrease the benefits of passive index fund investments drastically, the call for merger regulation in “concentrated industries” leads to increased legal uncertainty for the companies’ self-assessment whether to notify an acquisition of shares.  As a compromise, authorities might think of establishing safe harbor thresholds to clarify the application of merger control rules to minority shareholdings.

In Europe, the debate will likely lead to further empirical investigations and increased impact on merger cases. In its resolution of April 19, 2018, the European Parliament called the Commission “to take all necessary measures to deal with the possible anti-competitive effects of common ownership” and “to investigate common ownership and draw up a report […] particularly on prices and innovation”[31]. Unless and until this study finds clear and convincing evidence that does not support the initial paper’s findings and the Commission’s view expressed in Dow/DuPont, the issue is likely to stay, as the debate fits the current “era of fairness”, which is characterized by the perception that markets are too concentrated and that income and wealth inequality is growing.

Especially the above-mentioned per se conclusions the European Commission reached in Dow/DuPont will very likely have an impact on future merger decisions, i.e., they will make mergers in concentrated industries with substantial common ownership more difficult (or at least subject to greater scrutiny), and it will be difficult for companies to disprove the Commission’s views, given that they would have to prove a negative.

Against this background, given the early stage of the debate, stakeholders should use all means to shape the policy debate, and set up structures helping them to evidence (i) lack of control/influence on their portfolio companies’ competitive conduct, and (ii) lack of coordination with other investors.

Tilman Kuhn, White & Case Cristina Caroppo, White & Case
Tilman Kuhn,
Partner, Düsseldorf, Brussels,
White & Case LLP

Tilman's international experience across various locations includes merger control reviews, cartel matters, vertical conduct investigations, dominance matters, civil and appellate litigation and advisory work, as well as foreign investment control work. He represents clients across key industries, from oil & gas to chemicals, pharmaceuticals, consumer products, automotive and tech.Prior to joining White & Case, Tilman worked in the Cologne office for a renowned US law firm, with a particular focus on German and European antitrust law. During this time, he spent one year at the Brussels office.

Juve states competitors are describing him as "good and well experienced, especially regarding merger control cases". He is a prolific author on antitrust law and is an active member of Studienvereinigung Kartellrecht.

Cristina Caroppo,
Associate, Düsseldorf,
White & Case LLP

Cristina is a member of the firm's German and European antitrust practice group. 

Her international experience includes merger control reviews, cartel matters, and vertical conduct investigations in key industries, such as consumer products and automotive.Prior to joining White & Case in 2019, Cristina worked in the Cologne office for a renowned US law firm. During this time, she spent three months at the Washington D. C. office.


[1]              José Azar/Martin C. Schmalz/Isabel Tecu, “Anticompetitive Effects of Common Ownership” (2018), Journal of Finance, 73(4), 2018, available at SSRN: or

[2]              José Azar/Sahil Raina/Martin C. Schmalz, “Ultimate Ownership and Bank Competition” (2016), available at SSRN: or

[3]              Miguel Anton/Florian Ederer/Mireira Gine/Martin C. Schmalz, “Common Ownership, Competition, and Top Management Incentives” (2018), Ross School of Business Paper No. 1328, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 511/2017, available at SSRN: or

[4]              Eric A. Posner/Fiona M. Scott Morton/Eric Glen Weyl, “A Proposal to Limit the Anti-Competitive Power of Institutional Investors” (2017), Antitrust Law Journal, Forthcoming, available at SSRN: or

[5]              Einer R. Elhauge, twitter post of December 1, 2018, available at: There are, however, strong counter views arguing that the claims for antitrust action are misguided and overstating the evidential value and strength of the current empirical studies (see for example, Douglas H. Ginsburg/Keith Klovers, “Common Sense About Common Ownership (2018), Article to be published in Concurrences Review N° 2-2018; George Mason Law & Economics Research Paper No. 18-09, available at SSRN:

[6]              See, e.g., Pauline Kennedy/Daniel P. O'Brien/Minjae Song/Keith Waehrer, “The Competitive Effects of Common Ownership: Economic Foundations and Empirical Evidence” (2017), available at SSRN: or

[7]              Commission Decision of March 27, 2017, M.7932 – Dow/DuPont, Annex 5, sub-headings 5.1., 5.2., and 5.4.

[8]              See, e.g., BlackRock’s “Proxy Voting and Shareholder Engagement FAQ”, available at:

[9]              OECD Background Note, “Common Ownership by Institutional Investors and its Impact on Competition”, December 2017, available at:

[10]             Einer R. Elhauge, “Horizontal Shareholding” (2016), 109 Harvard Law Review 1267 (2016), Harvard Public Law Working Paper No. 16-17, available at SSRN: or

[11]             Andrew Finch,Principal Deputy Assistant Attorney General, Antitrust Division, Department of Justice, Concentrating on Competition: An Antitrust Perspective on Platforms and Industry Consolidation, Keynote Address at Capitol Forum’s Fifth Annual Tech, Media & Telecom Competition Conference (Dec. 14, 2018), available at

[12]             Id.

[13]             Commission Decision of March 21, 2018, M.8084 – Bayer/Monsanto.

[14]             Eric A. Posner/Fiona M. Scott Morton/Eric Glen Weyl, “A Proposal to Limit the Anti-Competitive Power of Institutional Investors” (2017), Antitrust Law Journal, Forthcoming, available at SSRN: or

[15]             See US Department of Justice press release of July 12, 2016, available at:

[16]            Commission Decision of March 27, 2017, M.7932 – Dow/DuPont, Annex 5.

[17]            Commission Decision of March 27, 2017, M.7932 – Dow/DuPont, Annex 5, para. 21.

[18]             Commission Decision of March 27, 2017, M.7932 – Dow/DuPont, Annex 5, para. 4.

[19]             Commission Decision of March 27, 2017, M.7932 – Dow/DuPont, Annex 5, para. 59.

[20]            Commission Decision of March 27, 2017, M.7932 – Dow/DuPont, Annex 5, sub-heading 3.3.

[21]            Commission Decision of March 27, 2017, M.7932 – Dow/DuPont, Annex 5, sub-heading 5.1.

[22]            Commission Decision of March 27, 2017, M.7932 – Dow/DuPont, Annex 5, sub-heading 5.2.

[23]            Commission Decision of March 21, 2018, M.8084 – Bayer/Monsanto, para. 221.

[24]            Commission Decision of March 21, 2018, M.8084 – Bayer/Monsanto, para. 3304.

[25]             Commission Decision of October 18, 2017, M.8523 – BD/Bard.

[26]             See US Note to OECD Hearing on “Common Ownership by institutional investors and its impact on Competition”, December 2017, available at:

[27]             See FTC Hearings on Competition and Consumer Protection in the 21st Century, FTC Hearing #8: Common Ownership, information available at:

[28]             BlackRock letter of January 15, 2019, available at:

[29]             State Street letter of January 15, 2019, available at:

[30]             S&P Dow Jones Indices letter of January 15, 2019, available at:

[31]             European Parliament Resolution of April 19, 2018 on the Annual Report on Competition Policy, available at:

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