Antitrust for Institutional Investors

Abstract

With the increasing concentration of shares in the hands of large institutional investors, combined with greater involvement in corporate governance, the antitrust risk of common ownership has moved to center stage. Through an excess of enthusiasm, portfolio managers could end up exposing their firms and the portfolio companies to huge antitrust liability. In this Article, we start from basic antitrust principles to sketch out an antitrust compliance program for institutional investors and for the investor relations groups in portfolio companies. In doing so, we address the fundamental antitrust issues (explicit and tacit coordination) raised by the presence of common ownership by large, diversified investors. We then turn to more speculative concerns that have garnered a great deal of attention and that, to our eyes, threaten to divert attention from the core antitrust issues. We critically examine the claims of this newer literature, as illustrated by Azar, Schmaltz and Tecu (2017), that existing ownership patterns in the airline industry results in substantially higher prices. We then turn to the argument in Elhauge (2016) that existing ownership patterns violate Section 7 of the Clayton Act. Finally, we find the policy recommendations of Posner, Scott Morton, and Weyl (2017) to limit the ownership shares of multiple firms in oligopolistic industries to be overly stringent. To limit the chilling effect of antitrust on the valuable role of institutional investors in corporate governance, we propose a quasi “safe harbor” that protects investors from antitrust liability when their ownership share is less than 15 percent, the investors have no board representation, and they only engage in “normal” corporate governance activities.