Institutional S&P 500 Index mutual funds as financial commodities : fact or fiction?

Given their simplicity and presumed commodity-like nature, institutional S&P 500 Index mutual funds should be subject to active price competition, resulting in only nominal size-adjusted differences in expenses. We find a wide disparity among fund expense ratios and their corresponding characteristics and performance. Overall, the evidence suggests some price competition among institutional S&P 500 Index funds, but not to the extent that they may be considered financial commodities. One explanation for the existence of high-priced index funds is that they tend to require significantly lower minimum initial purchases. Our data do not support the notion that institutional investors buy high-priced S&P 500 index funds to access broader or lower-cost investment services from fund families. We conclude the market for institutional S&P 500 Index funds is not completely homogenous.