Is Business Broken? What Happens When the Same Investors Own Competing Companies?
Mar 27, 2025
Florian Ederer, an expert in antitrust and competition at BU Questrom, dives into the contentious issue of common ownership—where the same big investors hold stakes in competing companies. He explains how this phenomenon impacts competition and innovation, questioning whether these firms maintain their competitive edge or simply boost costs for consumers. Ederer also highlights the implications for income inequality, revealing the disproportionate benefits for wealthier investors. Regulation challenges and the future of market dynamics take center stage in this enlightening conversation.
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Common Ownership Explained
- Common ownership is when large investors hold stakes in multiple competing firms, reducing competition incentives.
- This trend has grown due to widespread diversified investing through asset management companies like BlackRock and Vanguard.
Impact on Competition and Innovation
- Common ownership lessens competition, leading to higher prices and profits across industries.
- CEOs in commonly owned firms face weaker pay-for-performance incentives, reducing their drive for aggressive competition and innovation.
Buffett's Airline Investment Story
- Warren Buffett once vowed to avoid airlines but later invested in multiple to capitalize on industry profits.
- His approach reflects how investors seek value in commonly owned companies rather than picking winners.