Passive funds, particularly index funds invest minority holdings in the companies of the same index, that includes companies of the same Industry.
The likely effect of this sort of investment is that, in oligopolistic markets, institutional investors with minority holdings in various companies may have a relevant influence when the companies in which they invest have dispersed shareholders. This sort of investor tends to engage with companies similarly even if they do not follow coordinated plan. Either they use direct techniques such as voice or voting or indirectly setting the remuneration of directors based in market performance instead of firm performance.
Moreover, this similar behaviour might be also reinforced by other reasons. Firstly, institutional investors tend to rely on the same proxy advisors to vote as there are not many choices, so the recommendations tend to be of the same nature. Secondly, rules can also reinforce this sort of behaviour, for example, Directive (EU) 2017/828 promotes the engagement of institutional investors. As a result, even if index funds do not trigger control rules due to their minority holdings, their minority influence might force companies to reduce competition through illegal practises like collusion. Particularly, directors of companies that formed oligopolistic markets might consider the impact of their decisions in the profitability of competitors when the share the same shareholders. Therefore, these directors act less aggressively if we compare them with directors of companies with different shareholders which makes that this behaviour might trigger competition law rules.
This conduct has caught the attention of authorities and academic research recently. Once the findings are not conclusive, this project takes the mandate that claims the need for further study about the competition law issues when common ownership arises in oligopolistic matters.
The research proposal tries to solve the main questions regarding of common ownership nature, its impact in competition and possible solutions. Firstly, it is examined to which extent merger control is a suitable tool as this question has arisen already in the exam by the European Commission in the Dow/DuPont merger review. Secondly, it should be analysed whether common ownership should fall under art. 101-102 TFEU.
The originality of the project stems from a genuine perspective not analysed before: As it has been already been noted, the trend in Europe has been to promote the engagement of institutional investors and it has crystallised in the reform in of the Shareholders Directive (Directive 2017/828). Accordingly, it needs to be monitored whether these provisions increase the likelihood of anti-competitive trends due to the engagement of institutional investors in Europe.
Another unique side of the project is to evaluate the suitability of blockchain to control this sort of practices and help NCAs to monitor this behaviour. An identity ledger which stores the date of holdings should make it easier to detect any potential threats of institutional investor holdings in oligopolies.
In sum, this research contributes to the doctrinal debate in the near time as the results are planned to be submitted to outstanding journals of this field. The consolidated findings should help legislators to overcome the doubts that common ownership has arisen and regulate, if necessary, the possible limits to this sort of investment with a view on the impact of digitisation on this field.
