1992 Reports

Keiretsu shareholding ties: Antitrust issues

Flath, David

Antitrust concern about keiretsu shareholding ties is misplaced and at odds with economic reasoning and with empirical investigation. Shareholding by suppliers in their customers assures the suppliers of rewards from their transaction-specific investments. Shareholding by customers in suppliers bonds the suppliers to cater more fully to the customers' interests. Shareholding by Japanese banks in the companies to which they lend resolves agency problems and lowers the costs of borrowing. Organization of firms into cross-shareholding groups magnifies the favorable effects of cross-shareholding by assuring that direct shareholding links give rise to indirect shareholding as well. To the extent that keiretsu shareholding ties impede U.S. exports to Japan it is because they lower the keiretsu members' transactions costs of trading with one another and not because they raise rivals' costs.