51 Pages Posted: 18 Jul 2015 Last revised: 22 Apr 2016
Date Written: March 10, 2016
Horizontal shareholdings exist when a common set of investors own significant shares in corporations that are horizontal competitors in a product market. Economic models show that substantial horizontal shareholdings are likely to anticompetitively raise prices when the owned businesses compete in a concentrated market. Recent empirical work not only confirms this prediction, but also reveals that such horizontal shareholdings are omnipresent in our economy. I show that such horizontal shareholdings can help explain fundamental economic puzzles, including why corporate executives are rewarded for industry performance rather than individual corporate performance alone, why corporations have not used recent high profits to expand output and employment, and why economic inequality has risen in recent decades. I also show that stock acquisitions that create anticompetitive horizontal shareholdings are illegal under current antitrust law, and I recommend antitrust enforcement actions to undo them and their adverse economic effects.
Keywords: antitrust, horizontal, shareholdings, institutional investors, economic inequality, executive compensation, common shareholding, common ownership, HHI, MHHI, Herfindal-Hirschman Index, airline, Piketty. stock acquisition, anticompetitive, passive investor
JEL Classification: D21, D43, G11, G20, G30, G32, G34, K21, K22, L10, L13, L21, L22, L40, L41
Suggested Citation: Suggested Citation
Elhauge, Einer, Horizontal Shareholding (March 10, 2016). 109 Harvard Law Review 1267 (2016); Harvard Public Law Working Paper No. 16-17. Available at SSRN: https://ssrn.com/abstract=2632024 or http://dx.doi.org/10.2139/ssrn.2632024
By John Newman