When we think of corporate ownership, we picture individual shareholders. But the vast majority of U.S. stocks are owned by a handful of massive institutional investors: asset managers like BlackRock, Vanguard, and State Street.
These “Big Three” own significant shares in almost every major corporation in the S&P 500. Crucially, they often own large stakes in competing companies within the same industry. For example, they are top shareholders in all four major U.S. airlines, and all major banks.
This phenomenon, known as “common ownership,” creates a structural conflict of interest. If an asset manager owns shares in competing airlines, they don’t actually want those airlines to compete fiercely on price, because that would hurt the overall profitability of their portfolio.
Economists argue that common ownership contributes to the rise in corporate concentration and the suppression of competition. It aligns the interests of competing firms, leading to higher prices for consumers and lower wages for workers, without the need for explicit, illegal collusion.
Regulating common ownership is a new frontier in antitrust. Proposals include limiting the percentage of competing firms a single asset manager can own, or requiring them to vote their shares in a way that promotes competition rather than portfolio-wide profitability.
When looking at the stock market, recognize that the “invisible hand” is being guided by a very small number of very large hands. The concentration of financial power in the hands of a few asset managers is a hidden driver of the broader concentration of corporate power in the real economy.