Shorting Your Rival:

Antitrust authorities often have difficulty predicting whether a merger of rivals will enhance or degrade competition. For mergers that produce a mix of benefits and anticompetitive harms, they also have difficulty preserving the benefits while preventing the harms.

To help solve these and other problems, we propose the use of negative ownership remedies, wherein the merged firm effectively takes a short position in its competitors. A negative ownership remedy provides multiple distinct benefits: First, approving a merger conditional on negative ownership provides an ex post incentive benefit, because a merged firm with negative ownership in its rivals will have less incentive to engage in conduct that reduces competition. Second, it provides an ex ante signaling benefit. Privately informed firms that volunteer to take a negative ownership position are less likely to have proposed a merger that weakens competition. Third, the availability of the negative ownership tool allows antitrust authorities to make more finely calibrated decisions about whether to approve proposed mergers.