• The Law Gazette

Common Ownership & Theories of Harm: Standing In Current Paradigm

The 21st century has brought a new revolution age in terms of state development, economies expansion and reduction. And with advancements in the nature of competition policy development, can it all hint us towards an ultimate antitrust apocalypse. Then, in such an era will the alien concept of common ownership (considered as a doomsday machine by many economists) will work for the operation of free markets, competition and capitalism?


Common ownership is simultaneous ownership by institutional investors (or professionals) of shares in competing firms below the level of control. These institutional investors (banks, pension funds, insurance sector firms or the mutual investment funds) usually have a small minority stake of 5% or even less and are not usually represented by the board, i.e. strictly passive in their investment.

The major role of common ownership is to facilitate a platform for the exchange of information between competitors either through a direct collision or by way of “hub-and-spoke” cartel where asset holders pass on the competitively relevant sensitive information from one competitor to another. Later, concerns surrounding common ownership shift on the minority shareholding and the lawmakers proposed merger control to deal with the acquisition of non-controlling minority shareholdings. However, failed in future because of the extremely rare acquisition to raise anticompetitive concern.

Traditionally common ownership was not been seen as an antitrust issue. However, with certain recent theoretical and empirical studies economists, market readers and antitrust professionals had emphasized on the fact that common ownership in certain concentrated industries, especially air industry, retail banking and pharmaceuticals, can have a detrimental impact on market competition. The following issues have created a fuss for how to regulate or restrict common ownership using either existing or new antitrust laws whereas some scholars are of view calling the action as "dismember the octopus". Further, the dramatic tone of the ongoing debate on common ownership pose a question, that on what basis should the concept be applied in the real world and what can be done if there is no strong agreement on the notion, scope and detrimental effects of common ownership?


A hotly discussed issue in competition law and economic circles is market concentration and market power arising from common ownership. In order to capture the impact of common ownership on competition, research is being developed with regard to empirical evidence, theoretical measurement tools and potential transmission mechanisms. However, corporate policy may be influenced by common shareholding and empirical studies support its anticompetitive impact in concentrated commodity markets.

The key focus of the economic analysis was on unilateral anticompetitive effects: common shareholding could lead to short-term price increases due to lower incentives for widely owned companies to compete. Long-term anticompetitive tactics such as (tacit) collusion or (parallel) exclusion, however, may also be connected to traditional ownership and harm theories may also be more plausible. On the other hand, pro-competitive efficiencies or optimistic spillovers of innovation can be generated by popular ownership.

Importantly, long-term anti-competitive effects or coordination-dependent efficiencies need not rely on (partial) control or active leverage within corporate governance, but can also be dependent on communication processes or altered long-term incentives for collusion resulting from partial ownership.

Indeed, the regulation of firm management and market concentration of antitrust damage or good predictors of the harm may not be definitive. Common ownership usually does not rely on the firm's formal legal influence or stand-alone economic control but represents situations of indirect, de facto, collective control in corporate governance and commodity markets due to the interaction and cumulative impact of diversified investors on small parallel stakes in competitors.


With the advent of new and existing merger control and antitrust laws, accommodating common ownership theory of harm within the existing framework of competition law would require a more pragmatic shift in antitrust enforcement policy and revamp the current paradigm. As a first step towards the approach of common ownership, logically before to initiate a debate on the merits of a recent line of empirical research, the philosophers and economists should need to verify the concept’s application over the equity landscape i.e., adoption of common ownership by companies.

The theories of harm being a burning debatable topic attracts serious doubts that have been expressed about the soundness of existing empirical research, on theoretical and methodological grounds and the questions the root cause of the concept. The available data fails to somewhere draw a line between common ownership and the anti-competitive theories of harm. Thus, whilst it may be fashionable to focus on the concept of common ownership due to importance should also be given theories of harm while implementing the same in the current paradigm.


This blog has been authored by Ishika Rajoria, who is a 3rd Year B.COM., LL.B. student at Institute of Law, Nirma University, Ahmedabad.