Horizontal Shareholding and Antitrust Policy

22 Pages Posted: 2 Oct 2017 Last revised: 29 May 2018

See all articles by Fiona M. Scott Morton

Fiona M. Scott Morton

Yale School of Management; National Bureau of Economic Research (NBER)

Herbert Hovenkamp

University of Pennsylvania Carey Law School; University of Pennsylvania - The Wharton School

Date Written: 2018


“Horizontal shareholding” occurs when one or more equity funds own shares of competitors operating in a concentrated product market. For example, the four largest mutual fund companies might be large shareholders of all the major United States air carriers. A growing body of empirical literature concludes that under these conditions market output in the product market is lower and prices higher than they would otherwise be.

Here we consider how the antitrust laws might be applied to this practice, identifying the issues that courts are likely to encounter and attempting to anticipate litigation problems. We assume that neither the mutual fund managers nor the firms in the product or service market are fixing prices in a way that would subject them to antitrust liability. Section 1 of the Sherman Act and §7 of the Clayton Act take quite different approaches to this problem, but each could be brought to bear. While the current literature on horizontal shareholding does not offer a single robust explanation of how the price increase mechanism works, we show that the “effects” test expressed in the Clayton Act does not require proof of the precise mechanism. Further, §7’s “solely for investment” exception typically will not apply. We also briefly discuss special problems of private plaintiff challenges. Finally, we elaborate the two ways that efficiencies are relevant to analysis of such mergers. First, we show why the efficiency defense as currently formulated will seldom or never save such a merger. Secondly we discuss the problem of remedial efficiencies, or mechanisms for ensuring that judicial relief will not impose its own consumer harm.

Keywords: horizontal shareholding, mergers, antitrust, economies,

JEL Classification: D43, K21, L49

Suggested Citation

Scott Morton, Fiona M. and Hovenkamp, Herbert, Horizontal Shareholding and Antitrust Policy (2018). Yale Law Journal, Vol. 127, p. 2026, 2018, U of Penn, Inst for Law & Econ Research Paper No. 17-41, Available at SSRN: https://ssrn.com/abstract=3046203

Fiona M. Scott Morton

Yale School of Management ( email )

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New Haven, CT CT 06520
United States

National Bureau of Economic Research (NBER)

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Herbert Hovenkamp (Contact Author)

University of Pennsylvania Carey Law School ( email )

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Philadelphia, PA 19104
United States
319-512-9579 (Phone)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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