Tanya Sara George & Siya Deshmukh

Abstract: This article examines the implications of common ownership for competition in India’s increasingly oligopolistic markets. It assesses whether the existing material-influence framework adequately captures the competitive risks arising from overlapping ownership and informational linkages between rivals. By examining the interaction between market concentration, and common ownership, the article argues for a market-sensitive regulatory framework incorporating rebuttable presumptions and targeted behavioural remedies.

Introduction

India, in recent years, has shown a propensity to expand its oligopolistic markets. An oligopolistic market is one characterised by only a few dominant players who exhibit similar behaviour and control the majority of the market. The regulations governing these markets, however, have not displayed the same propensity for innovation.

One such example is regulation governing common ownership. Common ownership refers to a scenario wherein financial investors hold shares in companies that work within the same product/service markets. By virtue of being shareholders, these investors are often privy to each company’s strategic and private information. This could potentially result in a scenario where companies jointly increase prices and profitability strategies, and thereby implicitly soften competition in the market.

Existing literature has previously studied the effects of common ownership on      ordinary markets. This article studies its effects on India, whose markets are increasingly becoming oligopolistic. The authors put forth that the effects caused by common ownership are exacerbated within India’s  oligopolistic markets, necessitating intervention. The article is structured in the following manner. First, the authors provide a brief on common ownership through the lens of the harm theory. Second, the authors analyse the pro-competitive effects that may be attributable to common ownership, to undertake a holistic study. Third, the authors then situate the net competitive effect within oligopolistic markets. Lastly, the authors assess the present Indian model and suggest a path forward.

The Common Ownership Theory of Harm

The harm theory on common ownership bases itself on the incentives behind driving competition in the market. The theory is explained by a reduction in overall market competition as individual investors with diversified portfolios spanning competing industries may prioritise maximising their overall portfolio value rather than the growth of any single company. Further, the same investors would be far less likely to invest in innovation or R&D. While traditional investors benefit when a firm outperforms their rivals in the market, investors who hold stakes in multiple rival companies would benefit only from the collective performance of all the firms. On the contrary, they would engage in strategies that limit competition to secure quasi-monopoly profits.

For instance, consider an investor with significant stakes in Airline companies A & B. If A were to reduce its ticket prices and gain a subsequent increase in its market share, the investor’s aggregate returns from the industry would decline, due to B’s loss of profitability. He would then be incentivised to avoid mutually competitive strategies between firms and retain higher prices. Accordingly, the harm theory posits that common ownership reduces the incentive to compete aggressively. Rather than encouraging firms to outperform their rivals through innovation, investment in R&D, or lower prices, diversified shareholders may implicitly favour strategies that preserve industry-wide profitability.      Firms not competing with their counterparts result in harms traditionally associated with the softening of competition, such as higher prices, lower quality, reduced output, and less innovation.

Recent literature (see here and here) further aids this correlation to anti-competitive harm and common ownership. Though this aspect of the competitive harm theory has seldom been looked into, recent events such as the Federal Trade Commission’s opposition to common ownership and the Japanese proposal to disclose cross-shareholdings exemplify the ability of harm attributable to common ownership.

Pro-Competitive Effects

While the harm theory identifies ways in which common ownership can soften competition, shareholding overlap or information exchange between competitors is not always considered a per se violation of competition law, i.e., an act that is presumed to be anti-competitive. In United States v. United States Gypsum Co., the US Supreme Court held that information exchange among competitors falls in a “     grey zone” of conduct as it can be justified as a socially and economically acceptable business practice, and accordingly, required evidence of intent to establish an anti-competitive practice.

In India, continuing this ‘grey area,’ the CCI, in 2018, issued a decision in the Flashlights case stating that mere information exchange, in the absence of firms acting upon such exchange, would not constitute illegality. However, 2 years later, the CCI, in the Automotive bearings case, held that mere information exchange is sufficient for the commission to presume anti-competitive effects. This stance was upheld by the CCI in the Beer cartel case, wherein beer manufacturers were held liable for informational exchange even in the lack of implementation. Herein, while jurisprudence is presently leaning towards finding informational exchange anti-competitive, as will be elaborated further, there persists a gap for liability on informational exchange via common ownership in India.      Before approaching this premise, it must be noted that there are various pro-competitive effects that partial common ownership structures can bring. It is pertinent to assess the overall liability of informational exchange and parallel behaviour created in common institutions, while considering the positives they bring forth as well. For instance, common institutional investors can encourage firms to improve through (a) governance and (b) information exchange.

Common ownership can strengthen governance by giving a basis for the evaluation of comparative performance and enhancing overall operational efficiencies across their portfolio of firms by shifting their focus to sustainable business practices, focusing on long-term gains over short-term profits. Furthermore, information exchanges can result in significant economic efficiencies and enhance the overall market competitiveness of the firms.      When firms across the common ownership portfolio share non-exclusionary, aggregated, or historic data     , it can enable them to streamline operations, reduce costs, and improve consumer welfare.  Access to market-wide information allows companies to better understand industry trends, forecast demand more accurately, and allocate resources more effectively, resulting in improved services and product offerings.  Moreover, firms indicate increased growth in situations where they are aware of their external and internal capabilities by observing and adapting to market developments, leading to increased innovation.

However, these factors should not be analysed in isolation, but as one of the frameworks in the larger model of inquiry. Shy and Stenbacka’s formal welfare analysis of common ownership explicitly           shows that the net effect of common ownership is not fixed; it depends on the degree of risk aversion in the relevant investor base and the extent of product differentiation in the market. Further, in British-American Tobacco and R.J. Reynolds v. Commission, the European Court of Justice held that the acquisition of an equity interest in a competitor does not in itself restrict competition; it becomes problematic only where the shareholding enables commercial cooperation between the firms, or creates a structure capable of being used for such cooperation. The Court also categorically stated a caveat that regulators must apply heightened scrutiny where the overlapping shareholding is present in an oligopolistic market.

Thus, a case relying on pro-competitive effects will prevail only if the market is not so concentrated that a small number of firms can soften competition through tacit collusion.  Therefore, the question that arises is whether the net effects of these positive and negative effects are ultimately harmful in an oligopolistic market.

The Oligopolistic Nodus

An oligopolistic market is one characterised by the presence of a few competitors, none of which is individually in a position of market dominance, but each of which is relatively large. While the pro-competitive effects of common ownership seem to have a footing, one primary distinction must be made. As has been previously noted by Christiansen and Caves, the presumption that information exchange would cause pro-competitive effects is particularly situated within a specific type of market. While studying the pulp and paper industry, they observed that such information exchange would be beneficial within a market that is not highly concentrated. An oligopolistic market, by its nature, is highly concentrated, and thus,      the pro-competitive effects of information exchange might not extend to oligopolistic markets. This is because a highly concentrated market is characterised by parallel coordination, with players modifying their behaviour to meet their counterparts. Informational exchange amongst these players may allow them to reach a collusive equilibrium, antithetical to ordinary competitive behaviour. 

This conclusion was also drawn in the European Union so far back as 1987, amidst the BAT/R.J Reynolds vs Commission of the European Communities decision. The case involved the acquisition of a minority shareholding of a competing company. The court herein acknowledged that, in oligopolistic markets, there is a strong tendency that the establishment of links between firms would destroy competitive balance. The court noted that the regulators must be vigilant in transactions concerning this market, as such shareholdings automatically foster a temptation to coordinate market behaviour and maximise profits.

This has also been reiterated in recent research that common ownership has resulted in increased profitability in oligopolistic markets. This acknowledges that higher prices and limited output arise from the indirect structural links between industrial competitors caused by institutional shareholders in their ownership structure. These links also reduce unilateral incentives to compete and increase effective concentration in oligopolistic product markets. 

Further, managers in concentrated industries with high levels of common ownership may be motivated to pursue a “soft competition” approach, out of consideration for shareholders who also hold stakes in rival firms. This has been observed in the airline industry, where such behaviour has led to higher ticket prices. Similarly, a related study found that common ownership produced the same outcome in the commercial banking sector.  The overlapping interests of institutional investors across competing firms dilute incentives for aggressive competition and foster an environment conducive to tacit coordination. 

Therefore, common ownership, situated within oligopolistic industries, creates a detrimental potential for anti-competitive effects, undermining both market efficiency and consumer welfare in the long run. This necessitates regulation and transparency.

The Indian Model

The Competition Commission of India (“CCI”), in 2017, recognised the perils of common ownership in the Meru Cabs case. While they indicated that minority shareholding in competing undertakings may be harmful in the context of shareholders having ownership in both Uber and Ola, they adopted an approach that mandated the presence of cogent factors which indicate material influence. For example, in  Softbank’s ownership in Uber and Ola, the commission declined to penalise common ownership despite noting concerns of distorting competition, as there was no cogent evidence. Similarly, in XYZ vs Continental Milkose India Limited in 2025, the regulator declined to penalise common ownership, noting that there were no common directors. In both cases, the CCI declined to penalise common ownership on the grounds that anti-competitive behaviour requires a concrete meeting of minds, such as a discernible impact by the investors on the companies’ operations.

Although in the ChrysCapital case, when ChrysCapital was investing in two major rival companies in the pharmaceutical sector, the CCI pre-emptively took steps such as the removal of a common director to reduce anti-competitive effects. Notably, the CCI’s approach differed in this case as they noted that both companies had a consistently higher market share in a sector that did not show signs of dynamism. Further, the CCI limited certain information rights that ChrysCapital would have before approving the combination in order to prevent probable anti-competitive effects.

While the order does not expressly use the term oligopoly, the CCI’s approach herein implicitly indicates that certain markets that exhibit oligopolistic characteristics are more susceptible to concerns arising from common ownership. While the authors acknowledge that this is a step forward, the CCI has yet to effectively situate and analyse concerns of common ownership within an oligopolistic context.      Rather, the commission has required a standard of ‘material influence’ in order to begin regulating the market, such as voting rights or board representation.

Such an approach may be flawed in oligopolistic markets on two counts. First, oligopolistic markets, by their inherent nature, foster a strong tendency toward collusion, even in the lack of cogent evidence. Additionally, economic (see here and here) has shown that collusion can arise even in the lack of material evidence if there is reason to align interests, which is ostensibly present in oligopolistic markets wishing to increase profits. Second, it is also a known fact that certain cogent evidence, such as behavioural parallelism, which may be used to penalise other markets, cannot be applied in an oligopolistic setup, as it is their ordinary behaviour[12] . In this manner, prescribing a stringent threshold to regulate common ownership within markets may adversely affect the regulator’s ability to protect oligopolistic markets.

Conclusion & Way Forward

In India, collusive behaviour is classified as a Section 3 violation, or an abuse of dominance under Section 4. However, as the court       in paragraph 37 in Softbank’s case,      behaviours intrinsic to common ownership, such as utilising the same business strategies and creating barriers to deter the entrance of new participants is not sufficient to fall under the definition of an      ‘agreement,’ a necessary component for a Section 3 violation, and may not immediately demonstrate abusive conduct, excluding the ambit of Section 4.  Despite this, the CCI has acknowledged that in certain markets, common ownership may create harm even when it is done de minimis. While not involving oligopolistic markets, the CCI classified this as a statutory lacuna, which necessitates intervention.

An approach to remedy the perils of common ownership has previously been put forth by Posner, Scott & Weyl. They argue that limiting the shareholding of investors within oligopolistic markets to less than 1% within one effective market would reduce the probability of harmful common ownership due to a reduction in the return on investment and thereby the interest of a common shareholder. Another approach can also arise by limiting an individual’s shares to only one entity within the oligopolistic market, thereby stifling one’s ability to diversify their interests within the competitor’s shareholding.

However, the transplantation of the Posner, Scott Morton & Weyl framework into the Indian competition law ecosystem is not without practical and normative difficulties. Unlike the United States, where dispersed institutional ownership through mutual funds and pension funds constitutes a substantial portion of equity markets, India continues to exhibit a relatively concentrated ownership structure characterized by promoter-controlled firms, family-owned conglomerates, and significant state participation in strategic sectors. Consequently, common ownership in India frequently arises not merely through passive financial intermediation but through complex conglomerate structures, venture capital investments, private equity funds, and cross-holdings between corporate groups. A rigid 1% ownership cap or a prohibition on holding interests in multiple firms within an oligopolistic market may therefore become overinclusive, capturing investment arrangements that do not necessarily generate anticompetitive incentives while simultaneously discouraging capital formation in sectors that are heavily dependent on institutional financing.

Such a framework could be particularly problematic in emerging digital and technology markets, where the same investors often provide capital to several competing firms due to the inherently uncertain nature of innovation-driven industries. Restricting these investments may inadvertently reduce the availability of risk capital, hinder market entry, and strengthen the position of incumbent firms possessing independent access to financing. In this sense, a rule designed to enhance competition may paradoxically diminish dynamic competition by raising barriers to investment and innovation.

Therefore, broad structural restrictions on ownership may be unlikely to provide a complete solution in India. Given India’s dependence on institutional and venture capital investment, blanket limitations on cross-shareholdings could undermine market efficiency and impede capital allocation. A more nuanced approach would therefore be to subject common ownership arrangements in highly concentrated and oligopolistic markets to heightened scrutiny, particularly where market structure, ownership patterns, and economic evidence collectively indicate a reduction in competitive incentives. Herein, the CCI      could adopt a rebuttable presumption of anti-competitive effects for common ownership arrangements arising within highly concentrated oligopolistic markets. Once objective structural indicators, such as high market concentration, significant overlapping institutional shareholdings, and barriers to entry, are established, the burden should shift to the parties to demonstrate that the arrangement is unlikely to soften competition or that any coordination risks are outweighed by verifiable pro-competitive efficiencies.

Such an assessment may further be accompanied by behavioural remedies, including restrictions on access to competitively sensitive information, governance firewalls, or limitations on shareholder information rights where necessary to mitigate coordination risks. This framework would preserve the benefits of institutional investment while enabling the CCI to intervene before anti-competitive effects become entrenched, thereby aligning enforcement with the unique economic realities of India’s oligopolistic markets.

The authors are 5th-year, B.A.LL.B (Hons) students at MNLU Mumbai.