Andrew deJong

Job market paper

The Effect of Common Ownership on Pricing: Evidence from the Airline Industry

A significant fraction of publicly traded firms is held by institutional investors that own shares in multiple competing firms. Concerns have been raised that common ownership can lead to anticompetitive pricing in product markets. Addressing endogeneity concerns from the literature, I use instrumental variables for both ownership and market shares to provide reduced form evidence that ownership concentration has a positive and significant effect on prices. To understand how common ownership affects firm incentives and how investors react to these incentives, I take a structural approach where I include the investor decision. Building on an oligopoly model where firm managers internalize investor shareholdings, I structurally model ownership acquisition where investors internalize airline managers’ decisions. Using ownership data and data from the airline industry, I estimate the price effects of common ownership. I find that common ownership softens competition between airlines as prices are 15.3% higher on average relative to a counterfactual world with no common ownership.