Fiona Scott Morton is Theodore Nierenberg Professor of Economics at Yale School of Management; Herbert Hovenkamp is James G. Dinan University Professor at Penn Law and the Wharton School of Business. This post is based on their recent article, forthcoming in the Yale Law Journal. Related research from the Program on Corporate Governance includes The Growing Problem of Horizontal Shareholding (discussed on the Forum here), and Horizontal Shareholding (discussed on the Forum here), both by Einer Elhauge.
“Horizontal shareholding” occurs when a number of equity funds own shares of competitors operating in a concentrated product market. For example, the four largest mutual fund companies might be the four largest shareholders of all the major United States airlines. A growing body of empirical literature concludes that under these conditions market output is lower and prices higher than they would otherwise be.
Here we consider how the antitrust laws might be applied to remedy such situations, identifying the issues that the courts are likely to encounter. We assume that the firms in a concentrated product or service market are not fixing prices. Nor are the managers of the funds that acquire interests in their shares agreeing with each other about how to purchase or vote the shares or otherwise influence the behavior of these firms. If either of these two horizontal agreements exists it is independently actionable under §1 of the Sherman Act.
