Common Ownership and Collusion

We examine whether overlapping ownership predicts cartel participation. Common-ownership - when investors hold partial but significant shares in competing firms - has been shown to affect market outcomes in several ways, but the literature has mostly focused on the unilateral effects of common-ownership, and little is known about whether it may facilitate explicit collusion. To overcome the usual issue of sample selection bias in cartel studies, we exploit a unique dataset of a population of cartels, which were legal in Sweden between 1946 and 1993. We show that the size of profit weights is associated with (and granger cause) collusion, and stabilize cartel agreements. In addition, firms tend to decrease their profit weights immediately after the end of the cartel. We then examine the evolution of common ownership over time using network analysis as the cartels go from being legal to illegal in 1993. i.e., collusion becomes illegal.