Posted by Social Science Research Network
How horizontal shareholding harms our economy—and why antitrust law can fix it
By Einer Elhauge (Harvard Law School)
New economic proofs and empirical evidence provide powerful confirmation 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 two new industry studies that extend to the pharmaceutical industry the two prior industry studies finding that horizontal shareholding had anticompetitive effects in airline and banking markets. I also provide new analysis demonstrating that critiques of the airline and banking industry studies either conflict with the evidence or, when taken into account, increase the estimated adverse price effects from horizontal shareholding. I further provide new theoretical and f
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