Mutual Fund Market Structure and Company Fee Competition : Theory and Evidence

We investigate whether competition between the fund companies that offer mutual funds constrains individual fund fees. We document that over half of individual fund fee variation is explained by company-wide components. Moreover, we show using SEC prospectus download data that company-level attributes influence investors' consideration of companies. We connect these facts with a model of fee competition between co-considered fund companies, characterising the competitive landscape and associated equilibrium fees. Calibrating the model, we derive a testable prediction for competitively constrained fees. The prediction successfully explains cross-sectional variation in the company fee components, identifying the influence of company competition on fees