Market Power and Shareholder Control

This chapter explores the interplay between shareholders, competition for corporate control, and corporate governance in the public corporation context. Proponents of shareholder empowerment have long contended that management’s insulation from competitive markets is the primary obstacle to effective shareholder control of the public corporation. Meanwhile, shareholder empowerment has turned into a reality not through a robust market for corporate control but through the reconcentration of equity ownership and the rise of indexation. Against this background, we first revisit the case for shareholder empowerment through competitive markets and find it wanting when confronted with issues of market incompleteness, heterogenous shareholder preferences and misaligned incentives. Second, we show that the current market-power model of shareholder control may mitigate some of the efficiency concerns arising from these issues but presents novel challenges on both the economic front and as a matter of democratic theory.