Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry
Patrick Dennis, Kristopher Gerardi, and Carola Schenone
Working Paper 2019-15
Institutional investors often own significant equity in firms that compete in the same product market. These "common owners" may have an incentive to coordinate the actions of firms that would otherwise be competing rivals, leading to anti-competitive pricing. This paper uses data on airline ticket prices to test whether common owners induce anti-competitive pricing behavior. We find little evidence to support such a hypothesis, and show that the positive relationship between average ticket prices and a commonly used measure of common ownership previously documented in the literature is generated by the endogenous market share component, rather than the ownership component, of the measure.
JEL classification: G33, G34, G38, L41, L11
Key words: common ownership, airline prices, institutional ownership, competition
The authors thank Manuel Adelino, Ken Ayotte, Raj Aggarwal, Alon Brav, David Chapman, Sudheer Chava, Quinn Curtis, Steven Davido Solomon, Ofer Eldar, Daniel Ferreira, Paolo Fulghieri, Michael Gallmeyer, Todd Gormely (2019 American Finance Association discussant), Luis Felipe Greene, Campbell Harvey, Nadya Malenko, Frank Partnoy, John Pepper, Adriano Rampini, Daniel L. Rubinfeld, Martin Schmalz (2018 Financial Intermediation Research Society discussant), David C. Smith, Laura Starks (2018 European Finance Association discussant), James Weston, Bill Wilhelm, and Toni Whited for their helpful suggestions and discussions. They also thank seminar participants at the Fuqua School of Business-Duke, Georgia Tech, the Federal Reserve Bank of Atlanta, and the University of Virginia. Dennis acknowledges funding support from the Summer Research Fund at the McIntire School of Commerce. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.
Please address questions regarding content to Kristopher Gerardi, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta GA, 30308-4470, firstname.lastname@example.org; Patrick Dennis, University of Virginia, McIntire School of Commerce, East Lawn, P.O. Box 400173, Charlottesville, VA 22904-4173, email@example.com; or Carola Schenone, University of Virginia, McIntire School of Commerce, East Lawn, P.O. Box 400173, Charlottesville, VA 22904-4173, firstname.lastname@example.org.
Federal Reserve Bank of Atlanta working papers, including revised versions, are available on the Atlanta Fed's website. To receive e-mail notifications about new papers, use frbatlanta.org/forms/subscribe.