In the recent financial capitalism, passive investment vehicles have soaked-up enormous amounts of cash. Since 2008, in America, about $600 billion in holdings of actively managed mutual funds have been sold off, while $1 trillion has flowed into passive funds. And now these funds hold ownership stakes in large American firms. A number of critics argue that the outcome of this phenomenon derives from a centrally planned economy. The big problem with concentrated ownership may be that firms are too mindful of the interests of their biggest shareholders. Martin Schmalz, of the University of Michigan, and other authors have investigated the anti-competitive effects of concentrated ownership. A fund with a stake in just one firm in an industry sector wants that firm to out-compete its rivals, while big asset managers, which take large stakes in nearly all of the dominant firms in an industry sector, will probably not adopt the same perspective. In theory large asset-management firms might be quietly instructing the firms they own not to undercut rivals, boosting profits across the portfolio as a whole. Such findings should alarm regulators in the authors’ view. Limiting the ownership stakes of the large, passive asset managers might boost competition, but it would undercut the cheapest and most effective investment strategy available to retail investors. Indeed, common ownership is not the only barrier to competition in the American economy. The gLAWcal Team LIBEAC project Tuesday, 29 September 2016 (Source: The Economist)