A price war between big rivals is a consumer's dream. But for the faceless five, it's their worst nightmare. Credit:Tamara Voninski Overlapping ownership of competing firms is a growing problem. This is where institutional investors – huge companies which pool trillions of dollars for investment – own large shares of companies which are meant to be competing with each other. It goes without saying that this is potentially bad for competition. If the benefits of competition come at the expense of firms which are owned by the same people, why would you do it? Reducing competition among commonly-owned firms is great for shareholders, but not so good for your average consumer who gets stuck with the bill: higher prices, less variety and poorer quality products. To investigate the extent of overlapping ownership in Australia, Australian National University researcher Adam Triggs and I looked at the biggest owners of the major competitors in the 20 largest industries in Australia. Turns out that common ownership is very common indeed. Who are the Lexcorps and Cyberdynes of the Australian economy? It turns out that five investors – HSBC, JP Morgan, National Nominees, Citicorp and BNP Paribas – own a massive chunk of our listed companies. What's surprising about this is that many Australians probably haven't heard of some of them. What's even more surprising is that if you look at the big players in our 20 largest industries, the five faceless investors have a majority stake in most of them. They dominate industries as diverse as airlines, insurance, telecommunications and mining.

You might think that when these big investors choose to place a major stake in an industry, they put all their money into a single firm. If this was the case, then major investors would be like billionaire sports fans: they might sit in the front row and munch popcorn with their mouths open, but they don't make the game any less competitive. Unfortunately, it turns out that when the faceless five invest in an industry, they tend to place a bet each way. Let's take investor HSBC, for example. In petrol retailing, it owns one-third of Caltex and one-fifth of Woolworths. In electricity, it owns one-fifth of Origin and one-fifth of AGL. In life insurance, it owns a quarter of AMP and one-fifth of ANZ. In department stores and supermarkets, it owns one-fifth of Myer, David Jones, Wesfarmers and Woolworths. Having a slice of two competitors creates an unusual incentive for shareholders. When Myer takes market share from David Jones, an investor who owned one-fifth of Myer would normally be cheering. But because HSBC also owns one-fifth of David Jones, their Myer gains are offset by their David Jones losses. A price war between big rivals is a consumer's dream. But for the faceless five, it's their worst nightmare. To see how odd it is, imagine Russell Crowe having a 50 per cent stake in both the Rabbitohs and the Bulldogs. The faceless five aren't the only overlapping owners to worry about. According to data from the Australian Bureau of Statistics, Australia's managed funds industry has more than doubled as a share of the economy since 2004.

Overlapping owners don't just have the incentive to reduce competition, they also have the means. A big stake in a firm gives an investor the ability to appoint and remove directors, raise executive pay (or, in theory, lower it), and shape the company's strategic direction. Some economists have even gone beyond motive and opportunity to document direct impacts of overlapping ownership on competition. José Azar and his fellow researchers found that it increased US airfares by as much as one-tenth. In the US banking sector, it lowered the interest rates paid to depositors - and helped pad bank profits. Work by Miguel Antón and coauthors found that overlapping ownership weakens the link between pay and performance for the management team. Other researchers who have looked at the problem say that overlapping ownership is like a Clayton's merger - the merger you have when you're not having a merger. One way of tackling overlapping ownership is to give the Australian Competition and Consumer Commission a market studies power. It's an idea proposed by both Labor and the government's own Harper Review – yet so far ignored by the Turnbull government. On top of this, Labor has proposed to double the litigation budget for the competition watchdog, so it can do more to chase down anti-competitive conduct. And where a company has done the wrong thing, we want the maximum penalty to be 30 per cent of its sales revenue while it was breaking the law. These changes follow Labor's competition record in our last term of government, such as Chris Bowen's reforms to criminalise cartels. If the movies have taught us anything, it's that overlapping ownership tends to end badly. Although I doubt we'll see the rise of killer robots anytime soon, excessive market concentration means higher prices, more inequality and slower productivity growth. By lifting the lid on overlapping ownership, we can create a more prosperous and fairer society. Andrew Leigh is shadow assistant treasurer and spokesman for competition and productivity.