By and (IESE Business School)

Imagine a world in which two major competitors — think Coca-Cola and Pepsi — are both owned by the same big investors. This might sound like an unlikely scenario, but with the growth of major investment funds, it’s happening more than you think. This form of “common ownership” has sparked a fiery debate among economists and policymakers: does it make markets less competitive?

At first glance, it’s easy to see why common ownership might weaken competition. If one person holds substantial stakes in both Coca-Cola and Pepsi, they might prefer the companies not compete too aggressively. After all, if they fiercely battle it out, the overall value of the investor’s portfolio might decline. This has led many to question whether this widespread investor strategy is ultimately good for consumers and the economy.

This idea isn’t just academic speculation at a time when the same large institutional investors — such as BlackRock, Vanguard, Fidelity and State Street – often own stakes in companies across the same industry. Heavyweights in antitrust law have been raising alarm bells. Institutions like the U.S. Department of Justice, the European Commission and the Organization for Economic Cooperation and Development (OECD) are taking it seriously, even factoring in the theory of common ownership when considering mergers and business consolidations.

However, there’s a missing link in this theory. After all, it’s not the big investors who make day-to-day decisions for these companies. Those decisions come from CEOs and managers. So, is common ownership really impacting competition, or is this just a theoretical concern?


CEOs and Managers Provide Missing Link

Our reveals a surprising connection. It’s not that big investors are actively directing firms to compete less. By analyzing how CEO pay and performance interacted with levels of common ownership, we found a clear pattern. As common ownership increased, the link between a CEO’s wealth and company performance weakened. It’s as if, in a world of shared ownership, CEOs are allowed to “enjoy the quiet life”, not pushing too hard, knowing that their performance isn’t as closely scrutinized (as it would be with a non-diversified, highly entrepreneurial owner).

This is a game-changer for how we understand the dynamics of competition. The problem isn’t overt collusion or shady behind-the-scenes directives. Rather, it’s a more subtle change in how CEOs are motivated. And if CEOs are less driven to outperform, it’s consumers who might end up paying the price.

This might sound abstract, but the real-world implications are vast. If big investors indirectly make CEOs less competitive, we might see higher prices and less innovation. It could reshape entire industries.

This discovery has profound implications for policymakers. It shifts the focus from the big investors themselves to the internal structures of companies. To address the competitive issues arising from common ownership, we might need to reconsider how we incentivize top management in major corporations.

The bottom line is that understanding the subtle effects of saving and investment strategies on market competition is crucial. This study provides a fresh perspective, suggesting that the heart of the issue is in the incentives that drive our corporate leaders, which should be debated and discussed more in boardrooms and shareholder meetings.

If not, those savings you’re channelling into mutual funds may eventually undermine competition among companies — and you may pay the price for it.

Miguel Antón and Mireia Giné are professors in the Financial Management Department of .