Active Investors, Passive Investors, and Common Ownership

Recent studies have extensively examined the hypothesis that a higher degree of common ownership relaxes competition. This approach has typically conducted comparative statics analysis based on exogenously given rates of common ownership. This study constructs a simple model in which common ownership emerges as an equilibrium outcome resulting from ownership acquisition. We characterize the equilibrium incentives of institutional owners to acquire common ownership of the firms operating in a duopolistic product market. Further, we explore the effects of common ownership on passive investors, consumer welfare, and total welfare.