> Index funds “are great for investors,” says Elhauge, “but part of the reason they’re great for investors is exactly because of the anti-competitive effects.” Elhauge says the trusts of the late 19th century that gave rise to today’s antitrust laws also involved a form of common shareholding. > She might want Coca-Cola to take big risks to crush Pepsi, and invest capital in new products and markets to do so. An inve…
> So the way we can solve this problem is to outlaw shares ownership of competing companies? Seems like a fair solution. This just isn't practical. What if I'm invested in Big Bank and Big Tech Co. but then Big Tech Co. creates a wallet app and credit card -- do I have to sell my ownership in one of these companies? As an investor I definitely want to own companies that compete because I don't know which one is going…
No, company would have to split itself (create separated business entity) so you would have to sell your competing part of the company.
Such a change can also solve problem of companies using their dominant/monopolistic position in one business area to get unfair advantage in another.
> As an investor I definitely want to own companies that compete because I don't know which one is going to prevail.
That's the problem article describes! Such behavior reduces competition and hurts customers:
>> This line of research began with a 2014 paper about competition among U.S. airlines that quietly shook the fund industry and the antitrust world. José Azar, an economist at the University of Navarra in Barcelona, along with Martin Schmalz and Isabel Tecu, showed that airline ticket prices were 3% to 7% higher because big funds owned stakes in so many airlines.