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Keiretsu Shareholding Ties: Antitrust Issues

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  • DAVID FLATH

Abstract

Antitrust concern about keiretsu shareholding ties is misplaced and at odds with economic reasoning and with empirical investigation. Holding stock in a trading partner slants the bargaining over product market variables in favor of the trading partner. Divesting such a stock interest accomplishes the reverse. The firm holding shares in a trading partner can credibly threaten to divest should the trading partner behave opportunistically. Divesting withdraws the bargaining advantage that the equity position had conferred. Therefore, a firm may establish a partial equity position in a trading partner to deter opportunism. Additionally, Japanese banks' shareholding in the companies to which they lend resolves agency problems and lowers borrowing costs. Organizing firms into cross‐shareholding groups magnifies these favorable effects by assuring that direct shareholding by banks gives rise to indirect shareholding as well. Keiretsu shareholding ties impede U.S. exports to Japan because they lower the keiretsu members' costs of transacting with one another and not because they raise rivals' costs.

Suggested Citation

  • David Flath, 1994. "Keiretsu Shareholding Ties: Antitrust Issues," Contemporary Economic Policy, Western Economic Association International, vol. 12(1), pages 24-36, January.
    • Handle: RePEc:bla:coecpo:v:12:y:1994:i:1:p:24-36
    DOI: 10.1111/j.1465-7287.1994.tb00409.x
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    References listed on IDEAS

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    2. Laurence Loulmet, 1998. "L’évolution maîtrisée du gouvernement d’entreprise au Japon face à la déréglementation financière et aux investisseurs institutionnels," Revue d'Économie Financière, Programme National Persée, vol. 49(5), pages 173-187.

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