The Causal Mechanisms of Horizontal Shareholding

Abstract

Although empirical studies show that common shareholding affects corporate conduct and that common horizontal shareholding lessens competition, critics have argued that the law should not take any action until we have clearer proof on the causal mechanisms. I show that we in fact have ample proof on causal mechanisms, and that anyway antitrust enforcement should focus on anticompetitive market structures, rather than on causal mechanisms. I rebut claims that every type of causal mechanism that might produce anticompetitive effects is either empirically untested or implausible. I also show that critics are mistaken in claiming that common shareholders lack incentives to influence corporations to increase portfolio value by lessening competition. Finally, I show that preventing anticompetitive horizontal shareholding need not restrict diversification and would encourage, not discourage, desirable institutional investor influence on the efficiency of corporate conduct.

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