Press reports have revealed that the U.S. Department of Justice Antitrust Division, in its ongoing investigation of the major airlines for price-fixing and collusion, has requested that the airlines disclose information about meetings with their largest shareholders in which industry capacity was discussed. These reports highlight a potential new area of antitrust risks for investment firms and a subject demanding attention in any investment firm’s antitrust compliance program.

The focus of the DOJ investigation is a suspicion that the four major airlines – American, United, Delta and Southwest – have refrained from competitive moves on routes where they compete, specifically declining to cut fares and expand capacity, for the purpose of maintaining higher fares. Such restraint, by itself, would not be an antitrust violation. A violation could be established only with proof that the airlines have exercised such restraint as a result of an agreement among themselves. DOJ’s request for information on shareholders suggests that it is investigating whether the airlines formed an agreement with one another through meetings with investment firms that hold large shares of each of them.

The suspicion arises from the fact that a few institutional investors hold large shares in all four airlines. One prominent investment firm is among the five largest shareholders of each of the airlines. Several other investment firms hold large stakes in more than one of them. This situation has become common in recent years. Institutional investors hold more than 80% of the S&P 500 and frequently spread their holdings over more than one leading firm in an industry. As a consequence, competing firms often have major shareholders in common.

No information currently is available to indicate how the airlines might have used their common shareholders to form an agreement or indeed that they formed an agreement at all. As a hypothetical matter, common shareholders could be a means of forming an illegal antitrust agreement in a few ways. For example, competitors might use their common shareholders as a channel of communication with one another, to convey messages that price increases will be followed or that capacity will not be expanded in contested markets. Such active use of common shareholders could provide sufficient evidence for a charge of an illegal agreement, but the charge would not break any new grounds in antitrust law.

Recent scholarship, however, suggests that even without such active use by the competing firms, common ownership could be the basis of an alleged antitrust violation.[1] For example, common shareholders might, on their own initiatives, discourage managers from strategies to expand market share. These shareholders might conclude that they have nothing to gain from an increased market share for one firm, because it would be offset by the lost market share of a competitor in which they also hold shares, and that the net effect of the strategy would be to lower prices for all firms in which they have holdings. Even if common shareholders do not actively discourage strategies to increase market share, managers of competing firms might conclude on their own that such strategies would not be welcomed by major shareholders and would refrain from pursuing them.

The courts have yet to consider whether these latter scenarios would be sufficient to establish an illegal agreement under the antitrust laws. It is not clear how the courts would rule if and when such a case is presented. Until the courts provide some guidance, investment firms should be aware of the uncertain antitrust risks that they face when they holder large stakes in more than one leading firm in an industry.