Skip to main content
Disciplines
Automotive Business IT + Informatics Construction + Real Estate Electrical Engineering + Electronics Energy + Sustainability Insurance + Risk Finance + Banking Management + Leadership Marketing + Sales Mechanical Engineering + Materials
Events
DE
EN
Books
Journals
Topic Page
Marketing
Start single access now
Access for companies
EXTENDED SEARCH
Log in
Top
Published in:
Regulating Fintech in Asia: An Introduction Read chapter Read first chapter

2020 | OriginalPaper | Chapter

Horizontal Shareholding Among Fintech Firms in Asia: A Preliminary Competition Law Assessment

Author : Steven Van Uytsel

Published in: Regulating FinTech in Asia

Publisher: Springer Singapore

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

This chapter introduces the problem of horizontal shareholding in the fintech sector in Asia. A great deal of the fintech debate surrounds Grab and Go-Jek, two ridesharing platforms that are aggressively expanding their business geographically and product-wise. To finance the expansion, these firms rely on various investors. These investors do often not limit their interest in these two firms but also become shareholders in firms offering the same products. This form of shareholding, also known as horizontal shareholding, is increasingly characterizing the fintech scene in Asia. This triggers the question on how this phenomenon should be approached from a competition law perspective. Horizontal shareholding indeed facilitates the flow of information between competitors or enables control over the executives of competing firms. The issue is still controversial as there is disagreement on the effects of horizontal shareholding and on how competition law should be applied to the issue. However, there is an understanding that further research is warranted. Part of this research, this chapter argues, should not be on direct price increase due to horizontal shareholding. The international character of the horizontal shareholding in the Asian fintech sector requires a rethinking of the possible anticompetitive effects. This chapter claims that such an effect may be market division. Enforcement may be a difficult issue. However, when a merger occurs in this sector, enforcement authorities should pay close attention to the issue of horizontal shareholding.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Technik"

Online-Abonnement

Mit Springer Professional "Technik" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 390 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Maschinenbau + Werkstoffe




 

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

inform now
previous chapter Legislative Development on Crypto-Assets in Japan: Revisions to the Payment Services Act, etc.
next chapter Fintech, Overcoming Friction and New Models of Financial Regulation
Footnotes
1
Chandler and Barret (2019).
 
2
Ruehl (2019).
 
3
Mulia (2019a).
 
4
Available at: https://​www.​grab.​com/​sg/​brand-story/​. Accessed 31 March 2020.
 
5
Available at: https://​www.​gojek.​com/​about/​. Accessed 31 March 2020. Note that Go-Jek was established in 2010. However, at that time, the firm operated as a call-center.
 
6
Available at: https://​www.​grab.​com/​sg/​locations/​. Accessed 31 March 2020.
 
7
Available at: https://​www.​gojek.​com/​about/​. Accessed 31 March 2020.
 
8
Mulia (2019b).
 
9
Chandler and Barret (2018).
 
10
Mulia (2019b).
 
14
This phenomenon is called horizontal shareholding. Horizontal shareholding will be the term used in this Chapter. However, the literature uses different terminology to refer to a situation in which the leading shareholders of horizontal competing firms overlap. Some literature uses the terminology of common ownership. See Azar (2019); Azar et al. (2018); Patel (2018). Other literature mentions mutual fund holding. See Solomon (2016). Still other literature refers to the issue as common shareholding. See Campell (2018). Interlocking shareholding is frequently used by Ittai Paldor. Paldor (2019), p. 6. Elhauge points out that not all uses are interchangeable. Hence, some papers cover broader relations than only horizontal shareholding.
 
15
Elhauge (2018).
 
16
Azar et al. (2018).
 
17
Buckely and Webster (2016), p. 5.
 
18
Van Loo (2018), p. 238. Different studies refer to different classifications of FinTech services. In a European study, a reference is made to a study of IOSCO, Price Waterhouse Coopers, and Ernst and Young. The International Organization of Securities Commissions (IOSCO) categorizes payments, lending and crowdfunding, planning, trading and investment, insurance, data and analytics, blockchain, and security. PricewaterhouseCoopers has less categories and divides FinTech into transaction and payments systems, banking, investment and wealth management, and insurance. Ernst and Young uses the following typology: money transfer and payments, borrowing, borrowing, financial planning, saving and investments, and insurance. To conclude, the European Study classifies FinTech products and services into (1) banking (deposits and lending and equity), (2) payments, transfers, and forex, (3) digital currencies, (4) wealth and asset management, (5) personal financial management, (6) InsurTech, and (7) enabling technologies and infrastructure. See Fraile Carmona et al. (2018), pp. 21–22.
 
19
Van Loo (2018), pp. 239–340.
 
20
Van Loo (2018), pp. 239.
 
21
Van Loo (2018), p. 239.
 
22
Van Loo (2018), p. 239.
 
23
Van Loo (2018), p. 239.
 
24
Nicoletti (2017), p. 47.
 
25
Zhang (2019).
 
26
Zhang (2019).
 
27
Balea (2017).
 
28
Russel (2019).
 
29
Ellis (2018).
 
30
Mulia (2019b).
 
31
Fulco (2019).
 
32
Shevlin (2019).
 
33
Singh (2019).
 
34
Ganguly (2019).
 
36
Van Loo (2018), p. 246.
 
37
Fenwick, McCahery and Vermeulen (2017), p. 8.
 
38
Trulioo (2019); Blackman (2019).
 
39
Douglas and Grinsberg (2016–2017), p. 671.
 
40
Van Loo (2018), p. 246.
 
41
Finch Capital and dealroom.co (2019), p. 9.
 
42
Seedcamp (2020).
 
43
Series A, Series B, and Series C funding rounds occur when the start-ups are moving towards outside investment.
 
44
Finch Capital and dealroom.co (2019), p. 10.
 
45
Finch Capital (2020).
 
46
Finch Capital and dealroom.co (2019), p. 11.
 
47
Finch Capital and dealroom.co (2019), pp. 9–10.
 
48
Finch Capital and dealroom.co (2019), pp. 9–10.
 
54
Ruehl (2019)
 
55
Ruehl (2019)
 
56
Ruehl (2019)
 
57
Ruehl (2019)
 
63
Van Loo (2018), p. 247.
 
64
Van Loo (2018), p. 247. It should be noted that Rory Van Loo admits that it is too early to draw definite conclusions on whether such a harm is present in the FinTech sector. Seen the fact that such shareholding could provide ‘crucial funding, economies of scale, and geographic reach to new products,’ Van Loo opines that, for the moment at least, an opposite conclusion is more likely. Van Loo (2018), p.247.
 
65
Van Loo (2018), p. 246.
 
66
José Azar, a Spanish economist, has shown in 2012 that, over a period of ten years, institutional investors have increased their ownership in companies that are horizontally competing with each other. His Ph.D. study, A New Look at Oligopoly: Implicit Collusion Through Portfolio Diversification (See Azar (2012)), indicated that such horizontal shareholding of publicly traded companies, which exists when ‘the leading shareholders of horizontal competitors overlap,’ has more than doubled. See Elhauge (2018); Azar (2012), p. 50. In a paper preceding the publication of the doctoral thesis, Azar gives a concrete number. He mentions that the network density rose from 4% to 14%. Azar (2011), p. 3. The benchmark Azar used for considering companies to be connected by horizontal shareholding was that institutional investors owned 5% in each respective company. See Azar (2012), p. 50. In a paper preceding the publication of the doctoral thesis, Azar gives a concrete number. He mentions that the network density rose from 4% to 14%. Azar (2011), p. 3.
 
67
Elhauge (2018); Azar (2012), p. 50.
 
68
Azar (2011), p. 3.
 
69
Azar (2011).
 
70
It should be noted that the study on the Competitive Effects of Partial Ownership was preceded by another study Quantifying the Competitive Effects of Production Joint Ventures, which was conducted by Timothy Bresnahan and Steven Salop. They investigated the impact of a joint venture on the competitive price setting. Bresnahan and Salop (1986).
 
71
O’Brian and Salop (2000).
 
72
The Herfindahl-Hirschman Index is measured based upon squaring the market share of each firm competing in a market and then summing the resulting numbers. See https://​www.​justice.​gov/​atr/​herfindahl-hirschman-index. Accessed 31 March 2020.
 
73
Elhauge (2018), p. 1274.
 
74
Elhauge (2018), p. 1274.
 
75
Azar et al. (2018).
 
76
United States’ airline industry, for which it is held that ‘seven shareholders who controlled 60.0% of United Airlines also controlled big chunks of United’s major rivals, including 27.5% of Delta Airlines, 27.3% of JetBlue Airlines, and 23.3% of Southwest Airlines.’ Elhauge (2018), p. 1267.
 
77
Scholars proposing to be careful with competition law enforcement against horizontal shareholding often laud the scholars that have introduced the debate. Thomas A. Lambert and Michael E. Sykuta have been very explicit on this by asserting that ‘[t]he authors of the common ownership studies have helpfully drawn attention to a potential competitive problem that merits further study. The antitrust scholars who have proposed policy solutions to that purported problem have also made a valuable contribution by showing how existing law might be used to address anticompetitive harms from investors’ common ownership of small stakes in competing firms, should such harms prove grave enough to warrant additional antitrust intervention.’ See Lambert and Sykuta (2018), p. 55. Other criticism has been formulated by Rock and Rubinfeld (2017); Patel (2018); Ginsburg (2018); Paldor (2019).
 
78
Hemphill and Kahan (2019).
 
79
Patel (2018), pp. 53-56.
 
80
Rock and Rubinfeld (2017), p. 21.
 
81
The MHHI does not inform us what other impact of ownership could be expected or what the influence of communication may be.
 
82
Elhauge (2018), p. 11.
 
83
Elhauge (2018).
 
84
Elhauge (2018), pp12-13.
 
85
Elhauge (2017), p. 3.
 
86
Elhauge (2017), p. 4.
 
87
OECD (2017), par. 15.
 
88
Phillips (2018), p.6.
 
89
Phillips (2018), p.5.
 
90
Monopolies Commission (2016).
 
91
Monopolies Commission (2016), p.13
 
92
Case M.7932 – Dow/DuPont, Commission Decision of 27 March 2017, available at: https://​ec.​europa.​eu/​competition/​mergers/​cases/​decisions/​m7932_​13668_​3.​pdf. Accessed 31 March 2020.
 
93
Case M.8084 – Bayer/Monsanto, Commission Decision of 21 March 2018, available at: https://​ec.​europa.​eu/​competition/​mergers/​cases/​decisions/​m8084_​13335_​3.​pdf. Accessed 31 March 2020.
 
94
Vestager (2018). Also quoted by Bostoen (2020).
 
95
Vestager (2018). Also quoted by Bostoen (2020).
 
98
Case M.7932 – Dow/DuPont, par. 218.
 
99
Case M.7932 – Dow/DuPont, annex par. 23.
 
100
Anton et al. (2018).
 
101
Case M.7932 – Dow/DuPont, par. 2349.
 
102
Case M.8084 – Bayer/Monsanto, par. 223.
 
103
Case M.7932 – Dow/DuPont, annex par. 46-52.
 
104
Case M.7932 – Dow/DuPont, paras. 131 and 2350.
 
105
Case M.7932 – Dow/DuPont, par. 3304.
 
106
Paldor (2019), p. 45 (footnotes omitted). Plador refers to Hemphill and Kahan, and they write ‘The conclusion is that most proposed mechanisms either lack significant empirical support or else are implausible. Uncovering such evidence, if it exists, should be a focus of future work and governmental investigations.’ Hemphill and Kahan (2019), pp. 1 and 58. Rock and Rubinfeld express this as ‘Moving forward, it is appropriate for scholars, practitioners, institutional investors, and regulators to think about antitrust guidelines for diversified shareholders. We have sketched out and defended a first cut, but more work needs to be done’. Rock and Rubinfeld (2017), p. 48. Acknowledging that there is no ‘’yes or no’ answer to the question whether common ownership will generate substantial competitive harm in a particular market,’ Patel holds that ‘because of the a priory indeterminacy of common ownerships effect on competition and because economic understanding of the nature and extent of those competitive effect continues to evolve, common ownership should be evaluated on a case-by-case basis.’ Patel (2018), p. 59.
 
107
Paldor (2019), pp. 46-48.
 
108
Lianos et al. (2019), p. 19.
 
109
Lianos et al. (2019), pp. 14-18.
 
110
Lianos et al. (2019), p. 34.
 
111
The literature most often refers to Sect. 7 of the Clayton Antitrust Act (as amended by the Celler-Kefauver Anti-Merger Act of 1950 and then again in 1980). The discussion on the applicability of this Section is mostly academic. The main discussion is whether the Section can be applied to cases of horizontal shareholding in which the shareholders are not active and thus hold the shares ‘solely for investment.’ In Europe, it has been mentioned that, besides the provisions of the European Union Merger Regulation, also Article 101 of the Treaty of the Functioning of the European Union could apply. Elhauge (2019), pp. 37-61.
 
112
Lianos et al. (2019), pp. 33-34.
 
113
Rock and Rubinfeld (2017), p. 42-43.
 
114
Posner, Morton, Weyl (2017), p. 34.
 
115
Newham, Seldeslachts and Banal-Estañol (2018).
 
116
Lianos et al. (2019), p. 16 n. 60 and 61.
 
117
These firms are often called unicorns. ‘A unicorn start-up or unicorn company is a private company with a valuation over $1 billion. As of March 2020, there are more than 400 unicorns around the world. Variants include a decacorn, valued at over $10 billion, and a hectocorn, valued at over $100 billion.’ Available at: https://​www.​cbinsights.​com/​research-unicorn-companies. Accessed 31 March 2020.
 
118
Xiao (2017); Lashinsky (2018).
 
119
Chandler and Barrett (2018).
 
Literature
Azar J et al. (2018) The anticompetitive effects of common ownership. Journal of Finance 73(4):1513–1565CrossRef
Bostoen F (2020) The Uber-Grab merger and the potentially anti-competitive consequences of the battle for ride-hailing dominance. CoRe 64–68
Bresnahan TF, Salop SC (1986) Quantifying the Competitive Effects of Production Joint Ventures. Int J Ind Organ 4(2):155–175CrossRef
Douglas J L, Grinsberg R (2016–2017) Old wine in new bottles: bank investments in FinTech companies. Review of Banking & Financial Law 36: 667-711
Nicoletti B (2017) The future of FinTech: Integrating finance and technology in financial services. Palgrave Macmillan, LondonCrossRef
O’Brien DP, Salop SC (2000) Competitive Effects of Partial Ownership: Financial Interest and Corporate Control. Antitrust Law Journal 67:559–614
Patel MS (2018) Common ownership, institutional investors, and antitrust. Antitrust Law Journal 82(1):279–334
Solomon D (2016) Rational shareholder indifference: how to awake investors? Iyunei Mishpat 39:317
Van Loo R (2018) Making innovation more competitive: the case of fintech. UCLA Law Review 65:232–279
Vestager M (2018) Competition in changing times (FIW Symposium, Innsbruck, 16 February)
Metadata
Title
Horizontal Shareholding Among Fintech Firms in Asia: A Preliminary Competition Law Assessment
Author
Steven Van Uytsel
Copyright Year
2020
Publisher
Springer Singapore
Book
Regulating FinTech in Asia

Print ISBN: 978-981-15-5818-4

Electronic ISBN: 978-981-15-5819-1

Copyright Year: 2020

DOI
https://doi.org/10.1007/978-981-15-5819-1_10