Proposal To Remedy Horizontal Shareholding Is Flawed

By Elaine Buckberg, Steven Herscovici, Branko Jovanovic and James Reitzes (July 17, 2017, 11:37 AM EDT) -- Several recent studies claim to show that competition is adversely affected when institutional investors hold significant shares in multiple firms within a "concentrated" industry, leading to higher prices and other effects.[1] Following on this research, Eric Posner, Fiona Scott Morton and E. Glen Weyl have proposed a remedy that would allow institutional investors to hold shares in only one company in a concentrated industry, or to limit their shareholdings to no more than a 1 percent total equity stake in the industry when holding shares in multiple companies. They also propose a "safe harbor" for stand-alone "purely passive" index funds that...

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