Realized return differences affect portfolio weights and may induce crowding in asset portfolios. We argue that crowding can be costly to investors as it affects the risk-return efficiency of market proxies, potentially causing a negative externality for passive investors. The absence of crowding in a long-run equilibrium can be characterized by a weights martingale condition, which imposes restrictions on risk premia dynamics. As such, static cross-sectional premia are difficult to reconcile with long-run absence of crowding. Suggesting an entropy-based measure of investor crowding, we study observed crowding behavior for the U.S. equity market.