I don't know about proving that the market will be "less efficient", as OP put it, but certainly the rules would be quite different. If 100% of retail investor

I don't know about proving that the market will be "less efficient", as OP put it, but certainly the rules would be quite different. If 100% of retail investors were in "passively" managed funds, wouldn't that just be saying there's a giant fund of money available, to be split among public companies that meet certain criteria - and thus a set of concrete rules to be gamed? It would just be another input into the market equation. Investors could then say, "I think the macro environment right now is going to lead to events X and Y happening, which will in turn ruin these 5 companies, which will cause a rebalance in the giant pool of passively managed fund money, and so I'm going to make this bet that that happens."