Scott Hemphill’s award-winning paper addresses antitrust concerns when rivals merge: shorting competitors

For competing businesses that seek to merge, receiving government approval typically involves divestiture—the selling of assets—to ensure the new entity does not evolve into a monopoly. Recent market studies, including reports from Bain & Company and KPMG, have found that a majority of the companies that pursued mergers with rivals used divestitures to meet regulatory requirements and to ensure a level playing field. However, sometimes divestitures destroy the efficiencies that were the point of the merger in the first place. That raises the question: are there other ways to maintain competition in the marketplace without selling assets?


In “Shorting Your Rivals: Negative Ownership as an Antitrust Remedy,” published in the Antitrust Law Journal in 2024, Scott Hemphill, Alfred B. Engelberg Professor of Law and Economics, and co-authors Ian Ayres, a Yale Law School professor, and Abraham Wickelgren, a professor at University of Texas School of Law, offer an unexpected solution. They suggest that the combined enterprise can take a “negative ownership” position in other market competitors. In its simplest form, negative ownership takes the form of a short position: borrowing and immediately selling shares of a company, then buying the shares back if they decline in price; the borrowed shares can then be returned to the lender at a profit to the short seller.

The authors describe a variety of other ways to synthesize a short-like position through contract. Negative ownership, the authors explain, “would increase the [merged] firm’s prosocial incentive to compete. As a result, customers benefit from lower prices and other anticipated consequences from increased competition, including higher quality.” Their paper received the Jerry S. Cohen Award for best paper on antitrust remedies from the American Antitrust Institute at its 26th Annual Policy Conference in 2025.  

“Shorting Your Rivals” illustrates the idea using JetBlue Airways’ unsuccessful attempt to merge with ailing Spirit Airlines. In 2024, a court blocked JetBlue’s attempted $3.8 billion acquisition of Spirit on the grounds that it would result in higher fares and fewer choices for passengers. Hemphill and his co-authors argue that the deal might have moved forward under a negative ownership approach. In that scenario, JetBlue—as a pre-condition for government approval—would have taken negative ownership positions in competing airlines such as American and Delta. Then JetBlue’s incentive to cut prices would be boosted not only by the extra sales gained, but also by the negative effect on the profits—and stock price—of its competitors. Earlier this year, Spirit Airlines ceased operations.  

Ultimately, Hemphill argues, the negative ownership approach provides a basis for approving some, albeit not all, mergers of rivals and moving past the all-or-nothing dynamic that is often at play in such transactions—from inception to approval—by stoking innovation and providing greater flexibility to the process as a whole.  

How did “Shorting Your Rivals” come about?

Abe [Wickelgren] reached out to me with an idea that he was playing with. We were looking for ways to improve the competitive effects of mergers that have “bittersweet” effects. They might reduce costs in a way that’s ultimately good for consumers, but also give the combined firm a greater ability to raise prices or reduce quality. When you’re faced with a merger that has both effects at the same time, you wonder if there is some way to get the sweet without the bitter. And for some mergers, the answer is easy. It’s straightforwardly yes. There is overlap between the two firms’ competing products or store locations, and you can just sell off the products within the overlap. For example, to oversimplify somewhat, if two supermarket chains are merging, then you can sell off the supermarkets that are too close to one another.

But there are other mergers where you can’t sell or divest your way out of the problem. The government is forced to either block the transaction or allow it altogether, despite the harm to competition. And so, Abe and I wondered, is there some way that we can kind of square the circle here? We wrote something up and presented it to colleagues. Afterwards, we discovered that Ian had already written about some related ideas with [the celebrated financial economist] Stephen Ross. We asked if they’d be interested in joining forces with us, and Ian said yes. The paper took off from there, both in broadening the set of situations where the idea might work and in expanding the toolkit for implementing the solution.


Can you further describe how negative ownership could have potentially saved Spirit Airlines and benefited consumers?  

The airline example is plausibly a setting where there could be both a harmful loss of head-to-head competition, leading to higher prices, and beneficial economies of scale or scope—for example, they might help fill in the other’s route structures. This combination sets the stage for this negative ownership solution to do some useful work.

Your work also spotlights the attempted merger between rival publishers Simon & Schuster and Penguin Random House that was canceled in 2022 after a judge blocked it on antitrust grounds. How would negative ownership have ensured a competitive market in the publishing industry?  

This example was interesting, in part, because the main anticompetitive consequence of the two publishing houses proposing to merge was to sellers, rather than buyers. In this case, if you have fewer publishers bidding for a particular author’s book, the amount that the author receives is likely to go down, in the form of a lower advance for the book.

Here our thought was that negative ownership would change the incentives of the remaining firms, because an individual firm, if it outbid its rival, would get the benefits from this terrific book from Stephen King or another author, but it would also get the additional benefit that comes from the rival having lost out. That’s where the negative ownership part comes in. And so, even if you thought that competitive incentives might be dulled a little bit from the loss of one rival in the market, by putting on these negative ownership positions, there would be a counteracting incentive to compete that would sharpen competitive instincts.  

How has “Shorting Your Rivals” been received?  

The positive reaction has been encouraging. One of the striking reactions has been the interest in applying some version of this remedy to oligopolies more generally. That is, in markets that suffer from persistent high prices or low quality, administering a dose of additional competition through negative ownership, whether through short positions or by changing the structure of executive compensation. An intervention like this would generally mean new legislation, as opposed to an application of antitrust law as it currently stands.

What does existing antitrust law say about this?  

I think one way to think about it is that the governing law, the Clayton Antitrust Act of 1914, prohibits mergers where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” That term “may” is meant to be forward-leaning. So I think it’s suitable to use all the tools in our toolkit to make sure that we maintain competitive outcomes in the context of mergers.

Or take price fixing. Suppose we have a situation in which competitors have been found to have engaged in illegal criminal conduct to fix prices. The typical solution includes payments to victims for overcharges that they suffered as a consequence of the price fixing. Here, I think it’s reasonable for us to go further, and put steps in place to try to really sharpen competitive instincts and restore the competition that has been lost through the anticompetitive conduct.