Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry

Abstract

Institutions often own equity in multiple firms that compete in the same product market. These institutional owners may induce or mandate anti-competitive pricing behavior among product market rivals. This paper evaluates prior evidence of such behavior between competing airlines. The measure of common ownership used is a function of each airline's market share, as well as the control and cash flow rights held by the institutions that own the airlines that compete in the same market. We show that the documented positive correlation between common ownership and ticket prices stems from the market share component of the common ownership measure, and not the ownership and control components. We examine other econometric and data measurement issues and show that the previously documented results are sensitive to alternative measures of investor control, as well as alternative assumptions about equity holders' ownership and control during bankruptcy.