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Atlantic article from 2017 [1] mentioned that every company having the same set of investors might reduce competition on the market: "Julio Rotemberg, then a n
by jpalomaki 7y ago
Atlantic article from 2017 [1] mentioned that every company having the same set of investors might reduce competition on the market:
"Julio Rotemberg, then a newly minted economist from Princeton, posited that “firms, acting in the interest of their shareholders,” might “tend to act collusively when their shareholders have diversified portfolios.” The idea, which Rotemberg explored in a working paper, was that if investors own a slice of every firm, they will make more money if firms compete less and collectively raise prices, at the expense of consumers"
The article does point out that there are also other opinions on the subject.
[1] https://www.theatlantic.com/magazine/archive/2017/09/are-index-funds-evil/534183/ https://www.theatlantic.com/magazine/archive/2017/09/are-ind...
- paulpauper 7y agodoesn't that already happen? It seems like many firms converge on a single price for a service or product, such has domain names, soda, candy, or web hosting or credit card fees, give or take 10 percent or so.
- cuchoi 7y agoThe problem is that theoretically that could both indicate collusion or market efficiency.
- p1necone 7y agoCan we tell the difference just by estimating production costs? (at least in the case of soda, candy etc). Or is it more complicated than that?
- cuchoi 7y agoIn theory, yes. If you had a good estimate of marginal economic costs then it would be easier to conclude if there is collusion. In practice, it is very difficult to estimate economic costs. This, for example, would include estimating the opportunity cost of each company's investment.
- skybrian 7y agoAnd if you want to read more about this, Matt Levine writes about it fairly often. https://www.bloomberg.com/opinion/articles/2018-12-07/regulators-ask-if-index-funds-are-bad https://www.bloomberg.com/opinion/articles/2018-12-07/regula...
- benj111 7y agoAren't we already in that situation though? One charge levelled at active management is that they're closet trackers so they own at least most of the constituents of an index. And the big insurance companies and pension funds are probably going to have their funds spread out over competing companies.