A New Look at Oligopoly: Implicit Collusion Through Portfolio Diversification
Open accessAbstract
In this paper, I develop a model of oligopoly with shareholder voting. Instead of assuming that firms maximize profits, the objective of the firms is decided by majority voting. This implies that portfolio diversification generates tacit collusion. In the limit, when all shareholders are completely diversified, the firms act as if they were owned by a single monopolist. In a model of general equilibrium oligopoly with shareholder voting, higher levels of wealth inequality and/or foreign ownership lead to higher markups and less efficiency. The empirical section of the paper studies the network of common ownership of publicly traded US corporations generated by institutional investors. I show that the density of the network more than tripled between 2000 and 2010. I explore the empirical relation between markups and networks of common ownership. The evidence is consistent with the hypothesis that common ownership acts as a partial form of integration between firms.
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The three goals of perfect shareholder diversification, firms' maximization of shareholder interests ('good governance'), and preservation of competitive product markets cannot be simultaneously achieved.
“The three goals of (i) perfect shareholder diversification, (ii) firms' maximization of shareholder interests (”
From Anticompetitive Effects of Common Ownership (2018) · cites this paper as Azar, 2012
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The Social Responsibility of Business Is to Increase Its Profits
Friedman, M. (2007) · Corporate Ethics and Corporate Governance · doi:10.1007/978-3-540-70818-6_14 · Cited by 11,529 · cited 1× · see citing works
“Friedman (1970) argued that the only valid objective of the firm is to maximize profits.”
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Anticompetitive Effects of Common Ownership
AZAR, J., SCHMALZ, M. C., & TECU, I. (2018) · The Journal of Finance · doi:10.1111/jofi.12698 · Cited by 980 · see citing works
“, Faccio and Lang, 2002; Davis, 2008; Vitali, Glattfelder, and Battiston, 2011; Azar, 2012; Davis, 2013), but few have focused on product market outcomes. The closest paper in that respect is Azar (2012), who studies the effect of common ownership on firm-level profit margins. Azar (2012) also introduces the policy “t…”
InfluentialSelf-citation
- Authors
- Azar, J.
- Venue
- SSRN Electronic Journal
- Publisher
- Elsevier BV
- Published
- 2012
- ISSN
- 1556-5068 (ISSN-L)
- OpenAlex
- W2160115498
- Cited by
- 87
- References
- 1
- Citations by year
- 2026: 2 · 2025: 9 · 2024: 9 · 2023: 6 · 2022: 15 · 2021: 10 · 2020: 7 · 2019: 5 · 2018: 9 · 2017: 7 · 2016: 4 · 2014: 2 · 2013: 1
- Type
- posted content
- Language
- en
- Open access
- green
- doi.org
- Locations
- SSRN Electronic Journal (acceptedVersion)
- ProQuest Demo Repository (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Theory and Institutions
- Keywords
- oligopoly, tacit collusion, shareholder voting, portfolio diversification, collective ownership, institutional investors, markups, wealth inequality, foreign ownership, network density, corporate governance
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