Recent studies have linked the concentration of common shareholding in competing corporations (known as horizontal shareholdings) among the same group of minority shareholders with competition concerns. More precisely, the correlation between product market outcome and horizontal shareholding seems to be a real concern for competition in concentrated industries where the performance of the market is heavily affected by its structure, which, in turn, is vulnerable to corporate links created by horizontal shareholdings among competitors.
My recent paper examines whether the correlation between the structure of corporate ownership captured by common shareholding and the structure of the market(s) in which the companies operate might determine anticompetitive effects and be considered illegal under antitrust laws. After describing the main theoretical and empirical foundations for the competition concerns associated to common shareholding, I analyze the arguments raised both in favor and against the enforcement of antitrust laws and, in particular, the lack of evidence on the causal mechanism through which common shareholdings determine anticompetitive effects.
The academic debate centers mainly around two positions: on the one side, some argue that horizontal shareholdings increase the level of concentration in the marketplace and the competitive effects are based on a purely structural mechanism (the equivalent of what occurs in mergers). A variety of causal mechanisms that affect corporate incentives have been indicated to support the predictions of the econometric model, the modified version of the Herfindahl-Hirschman Index (MHHI), on price effects.
On the other side, it is argued that the MHHI lies on so many assumptions to be empirically tested as to generate doubts about its effective contribution to the formulation of the theory of harm. Moreover, absent control of the horizontal shareholders on the competing firms, no causal mechanism may be identified. Therefore, although admitting that horizontal shareholdings increase the level of concentration in the marketplace, it is argued that collusion in oligopoly, ie a conduct analysis as opposed to the structural one in mergers, should be the proper context to analyze the competitive concerns raised by horizontal shareholdings. Therefore, according to this view, the key issue is to prove how horizontal shareholders might make this happening.
However, subjecting the firms to liability under the behavioural paradigm of competition law would run against the premised structural component of the argument that horizontal shareholdings create structural incentives to anticompetitive behaviours, just as in anticompetitive mergers. In order to block mergers no direct evidence of communication is required, for it suffices that transactions that increase the level of concentration create incentives likely to bring about coordinated or unilateral effects on pricing behaviour. Antitrust law should focus on the incentives created by market structure, rather than on direct evidence that shareholders or managers acted based on such incentives.
As regards the possible ways for dealing with horizontal shareholdings, while in the US, the Clayton Act seems to ban mergers and stock acquisitions that are likely to have anticompetitive effects regardless of whether the mechanism for those effects is known, a different conclusion should be reached with regard to European Union competition law. Under the EU merger regulation, competitive effects of common shareholdings are captured if, and only, they confer control—control being the causal mechanism preidentified by the EU law to link competitive effects to a transaction that modifies the structure of the market.
Mario Cistaro is an LLM candidate at NYU Law. He holds a PhD in competition law from the University of Perugia.