The Economics of Mutual Fund Markets: Competition Versus Regulation

Abstract

One: History of the Development of the Mutual Fund Industry.- Investment Companies.- Organizational Structure.- Mutual Funds.- Money Market Mutual Funds.- Fund Complexes.- Pre-1940.- 1940 to 1970.- 1970 to the Present.- Overview.- Money Market Mutual Funds.- Other Mutual Funds.- Conclusions.- Two: Regulation of the Mutual Fund Industry.- Background.- Investment Company Act of 1940.- Purpose of the Act.- Mechanisms Established to Deal with the Abuses.- The 1970 Amendments.- Concerns Raised by the 1960s' Reports.- New Regulations in the 1970 Amendments.- Recent Regulatory Initiatives.- Is Regulation Necessary in the Current Environment?.- Three: Litigation under the 1940 Act and the 1970 Amendments.- Pre-1970 Amendments.- Post-1970 Amendments.- Summary of Economic Analysis Utilized in Litigation.- Four: Analysis of the Adviser-Shareholder Relationship in the Mutual Fund Industry.- Examination of Organizational Structure.- Shareholders and Advisers as Contracting Agents.- Competition as a Restraining Force.- Five: A Study of Current Market Conditions in the Mutual Fund Industry.- The Analytical Framework: On Industry Structure, Performance, and Conduct.- Perfect Competition and Perfect Contestability as Theoretical Structural Ideals.- Industry Concentration.- Conditions of Entry.- Investor Mobility.- Outlays on Inputs Used to Make Final Products Sold in Competitive Markets.- Industry Conduct under Perfect Competition and Contestability.- Conclusions.- Six: The Demand for Money Market Mutual Funds.- Demand Elasticity: An Introduction.- Elasticity of Market Demand for Money Market Mutual Funds.- Fund Elasticity of Demand.- Theoretical Specification of the Model.- A Workable Econometric Model.- Econometric Results.- Fund Elasticity With Respect to Total Fees.- Seven: A Cost Study of Mutual Fund Complexes.- Cost Functions.- Empirical Analysis.- Output Measures and Choice of Hedonic Variables.- Model Specifications.- Description of Data and Complex Selection Criteria.- Econometric Results.- Economies of Scale and Scope.- Conclusions.- Appendix A.- Appendix B.- Appendix C.- Eight: Toward Rational Policy on Regulation of Mutual Funds.- A Review of Fee Setting in the Mutual Fund Industry.- The Exploitation Hypothesis.- Economic Incentives and Industry Behavior.- The Evidence on Competition for Advisory Services.- Proposals for a Modified Regulatory Regime.- Eliminating the Special Pricing and Earnings Evaluation Criteria in the 1940 Investment Company Act.- Eliminating the Imposition of a Corporate-like Structure upon Mutual Funds.- Disclosure Requirements.- Facilitating Investor Ability to Move from One Fund to Another.- Conclusions.