How Horizontal Shareholding Harms Our Economy - And Why Antitrust Law Can Fix It
75 Pages Posted: 23 Dec 2018 Last revised: 26 Jun 2019
Date Written: June 24, 2019
New economic proofs and empirical evidence establish that, even when horizontal shareholders individually have minority stakes, horizontal shareholding in concentrated markets often has anticompetitive effects. The new economic proofs show that, without any need for coordination or communication, horizontal shareholding will cause corporate managers to lessen competition to the extent they care about their vote share or re-election odds and will cause executive compensation to be less sensitive to firm performance. The new empirical evidence includes two new cross-industry studies which confirm that, just as the proofs predict, increased horizontal shareholding reduces the sensitivity of executive compensation to firm performance and increases the gap between corporate profits and investment. The new empirical evidence also includes three new market-level studies that extend to seed and pharmaceutical markets the two prior market-level studies finding that horizontal shareholding had anticompetitive effects in airline and banking markets. It further includes a massive new cross-market study of hundreds of consumer goods that also finds that higher horizontal shareholding increases prices. I also provide new analysis demonstrating that critiques of the airline and banking market-level studies either conflict with the evidence or, when taken into account, increase the estimated adverse price effects from horizontal shareholding. Finally, I provide new legal theories for tackling the problem of horizontal shareholding. I show that when horizontal shareholding has anticompetitive effects, it is illegal not only under Clayton Act §7, but also under Sherman Act §1. In fact, the historic trusts that were the core target of antitrust law were horizontal shareholders. I further show that anticompetitive horizontal shareholding also constitutes an illegal agreement or concerted practice under EU Treaty Article 101, as well as an abuse of collective dominance under Article 102. I conclude by showing that horizontal shareholding not only lessens the market concentration that traditional merger law can tolerate, but also means that what otherwise seem like non-horizontal mergers should often be treated as horizontal. Those implications for traditional merger analysis become even stronger if we fail to tackle horizontal shareholding directly.
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