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

Abstract

In this article we refer to common ownership as various shareholders, notably index funds, holding minority stakes, typically far below a threshold that would be indicative of control in terms of Article 3 EUMR1, in different firms in the same relevant market. US agencies still appear reluctant about the idea of challenging mergers based on the existence of common ownership2. The EU Commission, on the other hand, in Dow/DuPont3 and in Bayer/Monsanto4 has crafted the idea that the mere existence of common ownership in the affected market can contribute to a competitive impediment in a horizontal merger of portfolio companies. In that regard, the Commission holds that competitive impediments resulting from common ownership can relate to price as well as to innovation. While we do not venture to evaluate whether the Commission’s conclusions in these two cases are ultimately convincing, we address the more general question as to whether the mere existence of common ownership reinforces potential negative effects of a merger without more. If that were the case, it could constitute a ‘default plus factor’. Our key finding, however, is that such a simple conclusion would not be warranted.