DP16905 Price Pressure Indices, Innovation and Mergers Between Commonly Owned Firms

Author(s): Roman Inderst, Stefan Thomas
Publication Date: January 2022
Keyword(s): Common ownership, Herfindahl-Hirschman Index, horizontal effects, innovation competition, Merger Control, Unilateral Effects, upward pricing pressure
JEL(s): L21, L22, L41
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16905

The potentially anticompetitive effects of common ownership are being discussed controversially. While the US agencies still display reluctance, the Commission has already invoked common ownership has part of a theory of harm in Dow/DuPont and Bayer/Monsanto. In our paper we focus on how common ownership can bear on the application of price pressure indices in unilateral effects analysis of horizontal mergers between portfolio companies. We do not assess whether the underlying premise of common ownership to lead to an internalization of shareholders' expectations of high overall market returns is convincing. Rather, we hypothesize such common shareholder influence. Our main conclusion is that common ownership should still not be considered a general circumstantial factor indicating competitive harm with respect to post-merger price increases or effects on innovation competition. Rather, it calls for case-by-case analysis.