Evaluating the competitive effects of corporate acquisitions and mergers #FTC-2018-0053-D-0011

Submission Number:
Thomas Lambert
Initiative Name:
Evaluating the competitive effects of corporate acquisitions and mergers
We are grateful for the opportunity to respond to the U.S. Federal Trade Commissions request for comment on its upcoming hearings on Competition and Consumer Protection in the 21st Century Hearings. We are professors of law (Lambert) and economics (Sykuta) at the University of Missouri. We wish to comment on Topic 6, evaluating the competitive effects of corporate acquisitions and mergers and specifically on Subtopic 6(c), the analysis of acquisitions and holding of a non-controlling ownership interest in competing companies. Recent empirical research purports to demonstrate that institutional investors common ownership of small stakes in competing firms causes those firms to compete less aggressively, injuring consumers. A number of prominent antitrust scholars have cited this research as grounds for limiting the degree to which institutional investors may hold stakes in multiple firms that compete in any concentrated market. In our recent working paper, The Case for Doing Nothing About Institutional Investors Common Ownership of Small Stakes in Competing Firms, which we submit along with these comments, we contend that the purported competitive problem is overblown and that the proposed solutions would reduce overall social welfare. With respect to the purported problem, our paper shows that the theory of anticompetitive harm from institutional investors common ownership is implausible and that the empirical studies supporting the theory are methodologically unsound. The theory fails to account for the fact that intra-industry diversified institutional investors are also inter-industry diversified, and it rests upon unrealistic assumptions about managerial decision-making. The empirical studies purporting to demonstrate anticompetitive harm from common ownership are deficient because they inaccurately assess institutional investors economic interests and employ an endogenous measure that precludes causal inferences. Even if institutional investors common ownership of competing firms did soften market competition somewhat, the proposed policy solutions would themselves create welfare losses that would overwhelm any social benefits they secured. The proposed policy solutions would create tremendous new decision costs for business planners and adjudicators and would raise error costs by eliminating welfare-enhancing investment options and/or exacerbating corporate agency costs. In light of these problems with the purported problem and shortcomings of the proposed solutions, the optimal regulatory approachat least, on the current empirical recordis to do nothing about institutional investors common ownership of small stakes in competing firms. Thank you for considering these comments and our attached paper. We would be happy to answer any questions you may have. Sincerely, Thomas A. Lambert, Wall Family Chair in Corporate Law and Governance, University of Missouri Law School Michael E. Sykuta, Associate Professor, Division of Applied Social Sciences, University of Missouri; Director, Contracting and Organizations Research Institute (CORI)