Eric Posner on Institutional Investors Reducing Competition

A Monopoly Donald Trump Can Pop

The problem is not just the size of the institutional investors, but the way they invest. Institutional investors often own stakes in all the competitors in concentrated industries. Vanguard alone, with more than $3.5 trillion in assets under management, owns the biggest or second­biggest stake in JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, U.S. Bancorp and PNC Bank. BlackRock, with more than $5 trillion in assets under management, also owns one of the three largest stakes in all these banks.

The pattern recurs across the economy. Vanguard and BlackRock are the largest owners of Apple and Microsoft, and among the top three owners of CVS, Walgreens and Rite Aid. If you zoom down to, say, the market in cooking stoves, you will see that the largest owners of two of the three major competitors — GE, Whirlpool and Electrolux — are Vanguard, BlackRock and State Street. The same patterns appear in airlines, soft drinks, you name it.

Economic theory tells us that when a single investor owns large stakes in competing firms, the investor will want firms to keep prices high and wages low. Price and wage competition lowers profits and stock values.

Read more at The New York Times