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Horizontal Shareholding

51 Pages Posted: 18 Jul 2015 Last revised: 22 Apr 2016

Einer Elhauge

Harvard Law School

Date Written: March 10, 2016

Abstract

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

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

Einer Elhauge (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

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