Testing for Competitive Effects of Common Ownership

Abstract

We propose an alternative approach for analyzing the competitive effects of common ownership: to directly analyze the weights that firms place on each others' profits rather than using measures of industry concentration (MHHI and GHHI). Analyzing weights has at least three advantages: it places fewer restrictions on the nature of competition, it requires less data to test, and it circumvents endogeneity concerns with concentration measures. We apply our approach to data from the banking industry, and our preliminary results mixed and overall rather muted. The sign of the competitive effect is sensitive to specification, and the effects we estimate are economically quite small. Firms upon which significant weight is placed - either by themselves or competitors - move very little in price or quantity distributions.