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TheOpinionPages

OPEDCONTRIBUTORS

AMonopolyDonaldTrumpCanPop
ByERICPOSNER,FIONASCOTTMORTONandGLENWEYL DEC.7,2016

Amongthemysteriesabouttheincomingadministration,DonaldJ.Trumps
approachtoantitrustlawsstandsoutforitsimportance.Mr.Trumpgainedalotof
votersupportbecauseofthestagnationofworkingclasslivingstandardsintheface
ofrecordcorporateprofits.
Sensingthis,hechanneledpopulistangeragainstelitecorporationsby,for
example,callingtheproposedmergerbetweenAT&TandTimeWarnertoomuch
concentrationofpowerinthehandsoftoofew.
Buttherealchallengetocompetitivemarketstodaydoesnotcomefrom
mergerslikethisone.Thegreat,butmostlyunknown,antitruststoryofourtimeis
theastonishingriseoftheinstitutionalinvestoralargecompany,likeamutual
fundcompany,insurancecompany,pensionfundorassetmanagementfirm,that
buysstockinsubstantialquantitiesforthebenefitofclientsandcustomersand
thechallengethatitposestomarketcompetition.
In1950,institutionalinvestorsownedabout7percentoftheUnitedStatesstock
markettodaytheyownalmost70percent.Ifyoucountthemasasingleinvestor,
BlackRock,VanguardandStateStreetarethelargestownerof88percentofthe
companiesintheStandard&Poors500.Controloftheeconomyhasnotbeenthis
concentratedsincetheGildedAge.Thisgrowingpowerhasundercutmiddleclass
livingstandards.Butthereisawaytostopit.
Theproblemisnotjustthesizeoftheinstitutionalinvestors,butthewaythey
invest.Institutionalinvestorsoftenownstakesinallthecompetitorsinconcentrated

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industries.Vanguardalone,withmorethan$3.5trillioninassetsunder
management,ownsthebiggestorsecondbiggeststakeinJPMorganChase,Bankof
America,Citigroup,WellsFargo,U.S.BancorpandPNCBank.BlackRock,withmore
than$5trillioninassetsundermanagement,alsoownsoneofthethreelargest
stakesinallthesebanks.
Thepatternrecursacrosstheeconomy.VanguardandBlackRockarethelargest
ownersofAppleandMicrosoft,andamongthetopthreeownersofCVS,Walgreens
andRiteAid.Ifyouzoomdownto,say,themarketincookingstoves,youwillsee
thatthelargestownersoftwoofthethreemajorcompetitorsGE,Whirlpooland
ElectroluxareVanguard,BlackRockandStateStreet.Thesamepatternsappearin
airlines,softdrinks,younameit.
Economictheorytellsusthatwhenasingleinvestorownslargestakesin
competingfirms,theinvestorwillwantfirmstokeeppriceshighandwageslow.
Priceandwagecompetitionlowersprofitsandstockvalues.
Institutionalinvestors,eveniftheypassivelyholdthestocksintheirportfolio,
canachievesuchareductionincompetitioninmanyways.Theyvoteon
compensationpackagesforchiefexecutives,nominateboardmembersandmeet
withmanagementtoexpressopinionsonbusinessstrategy.AsVanguardstateson
itswebsite,Webelievethatouractiveengagementdemonstratesthatpassive
investorsdontneedtobepassiveowners.
Theempiricalimpactofinstitutionalinvestorswasrevealedintwoblockbuster
academicpapers.OnewrittenbyJosAzar,MartinC.SchmalzandIsabelTecu
foundthatairlineticketpricesincreasedasmuchas10percentbecauseofcommon
ownership.AnotherbyMr.Azar,Mr.SchmalzandSahilRainafoundlarge
increasesinbankfeesandreductionsininterestratestosaversfromcommon
ownershipofbanks.
Suchownershippatternsarealreadyillegal.Section7oftheClaytonAntitrust
Actmakesfirmsthatbuystockinotherfirmsliableiftheeffectofsuchan
acquisitionmaybesubstantiallytolessencompetition,ortotendtocreatea
monopoly.In1957theSupremeCourtnotedthatsuchprohibitionsholdeven
whenthepurchaseissolelyforinvestment.Unfortunately,becausetheantitrust

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implicationsofinstitutionalinvestmentwerenotrecognizeduntilrecently,legal
actionhasnotyetbeentaken.
However,indiscriminateapplicationoftheselawswoulddisruptanindustry
thatmanyAmericansrelyonfor(often)lowfee,diversifiedsavings.Toavoidsuch
disruption,thegovernmentshouldenforcetheClaytonActagainstinstitutional
investorswhilerecognizingasafeharborforthosethateithertakeasmallstakein
anoligopolisticindustry(lessthan1percentofeachcompany)orinvestinnomore
thanonecompanyperindustry.BlackRockcouldownalargestakeinUnitedor
DeltaorAmericanorSouthwest,butnotallofthem.
Largeinstitutionalinvestorscouldstillprovidecheap,diversifiedmutualfunds
toconsumersunderourproposalbecausethebenefitsofdiversificationwithinan
industryaretinycomparedwithdiversificationacrossindustries.Afundowning
UnitedAirlinescandiversifywithholdingsinWalgreensitdoesnotneedtoown
Deltaaswell.Smallinstitutionalinvestorscandiversifyinanywaytheylike.Our
proposalwouldrestorecompetitiontoourincreasinglycartelizedeconomywitha
minimumofdisruptionforexistingbusinesspractices.
WillMr.Trumpfightfortheinterestsoftheworkingclassvoterswhobrought
himtopower?OurapproachwouldraiselivingstandardswhilemakingAmerican
companiesmorecompetitive.
Ifthenewadministrationsantitrustenforcersignorethischancetofollow
throughonMr.Trumpspromises,votersshouldholdhimtoaccount.
EricPosnerisaprofessorattheUniversityofChicagoLawSchool.FionaScottMorton,
aformerdeputyassistantattorneygeneralforeconomicsattheantitrustdivisionofthe
DepartmentofJustice,isaprofessorattheYaleSchoolofManagement.GlenWeylisa
visitingscholarineconomicsandlawatYale.
FollowTheNewYorkTimesOpinionsectiononFacebookandTwitter
(@NYTOpinion),andsignupfortheOpinionTodaynewsletter.
AversionofthisopedappearsinprintonDecember7,2016,onpageA29oftheNewYorkeditionwith
theheadline:AMonopolyTrumpCanPop.

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