Israel's Anti-Concentration Law

The law addresses economy-wide economic power through a combination of regulatory review and structural ownership rules. Unlike ordinary antitrust analysis, which generally examines competition within a particular market, its economy-wide framework considers the concentration of substantial assets across sectors and the bargaining power that major entities may exercise toward regulators and political decision-makers.[4]

Its three central mechanisms require concentration and competition review when the state allocates rights in essential infrastructure, restrict publicly traded pyramids to two layers, and separate control of significant non-financial corporations from significant financial entities.[1][4]

By 2010, Israel's corporate landscape was dominated by a small number of large, integrated business groups. A government committee reported that 24 such groups controlled 136 of Israel's 596 publicly traded companies—approximately 23% of all listed companies—accounting for roughly 68% of total public-company market capitalization.[1] One group had constructed a pyramid of seven ownership layers.[1] Contemporary investment reporting also described cross-shareholding and stable-shareholder arrangements as common among listed firms with dispersed ownership, while hostile takeovers were virtually unknown because ownership was so concentrated.[5] These structures raised corporate-governance concerns: the separation of ownership from effective control could allow controlling shareholders to extract resources from lower-tier companies, obtain preferential access to credit, and exercise leverage over state institutions through control of essential infrastructure.[1]

Concentration in finance had deeper roots. In the early 1980s, the three largest banks accounted for about 85% of Israeli banking activity; reform debates also focused on potential conflicts among banks' financial activities and on corporate-governance problems associated with concentrated ownership layers.[6] In 2008, the 20 largest borrower groups received 54.6% of business-sector bank credit, illustrating how financial resources flowed disproportionately toward large conglomerates.[1]

The reform process began before the social protests of 2011. The Government Committee on Increasing Competitiveness in the Economy was established in October 2010 and published its interim recommendations in October 2011.[1] The summer 2011 protests intensified pressure over the cost of living and competition, and the government formed the separate Trajtenberg Committee in response.[7][1] The earlier competitiveness committee recommended decentralizing control of essential infrastructure to prevent state assets from being transferred into the hands of a few domestic conglomerates.[2][1] The government adopted its recommendations in April 2012, beginning the legislative process that culminated in the law's passage.[1]

An earlier, related step had been taken in July 2011, when the Knesset approved a measure allowing the Antitrust Supervisor, in certain cases, to declare a closed group operating within the market a "group of concentrations." The measure reflected concern about the influence of powerful business figures, sometimes referred to in public debate as "tycoons."[8]

The Law for Promotion of Competition and Reduction of Concentration addresses three principal areas: the allocation of state assets and rights in essential infrastructure; restrictions on pyramidal holding structures among publicly traded companies; and mandatory separation between significant non-financial corporations and significant financial entities.[1]

Essential Infrastructure Allocation. When regulators propose allocating listed essential-infrastructure rights to an entity designated as concentrated, they must consider economy-wide concentration and consult the Committee for the Reduction of Concentration. Listed rights also trigger consideration of sectoral competition and, where required, consultation with the Director General of the Competition Authority.[1][4] The rights may include licenses, contracts, franchises, privatizations, or significant holdings. Covered sectors include communications, water, electricity, natural resources, energy, transportation, and financial clearing and trading systems.[1]

The Competition Authority defines economy-wide concentration as "a phenomenon where many substantial assets are held by a small number of players."[4] It distinguishes this concept from ordinary antitrust market power by focusing on the economy as a whole and on the bargaining power that large entities may exercise toward policymakers, regulators, Knesset members, and government ministers. Identified risks include market distortions, reduced economic growth and efficiency, harm to consumer welfare, excessive influence over regulation, and fewer independent players in critical sectors.[4]

A consumer-welfare safeguard prevents economy-wide concentration considerations from being applied in a manner that significantly harms consumers. Consumer welfare encompasses prices as well as innovation, technological development, diversity, and other public benefits. The committee may recommend conditional approval—such as requiring the sale of assets, ending certain activities, or giving preference to non-concentrated applicants—rather than an unconditional approval or prohibition.[4]

Pyramid Restrictions. The law limits a public company, or a company whose debentures are publicly traded, to a pyramid of no more than two public-company layers: a parent and a single subsidiary.[1] Transitional rules gave existing groups additional time: pyramids of four or more layers were prohibited by December 2017, and pyramids of three or more layers by December 2019.[1] The legislation was also intended to affect future privatizations of remaining government-owned entities, seeking to prevent state-asset sales from reconcentrating ownership.[2]

Financial and Non-Financial Separation. A significant non-financial corporation is defined as a non-financial business group with annual turnover or total credit exceeding NIS 6 billion, indexed annually to the consumer price index. A significant financial entity is a financial institution—such as a bank, insurer, or investment-portfolio manager—with total assets exceeding NIS 40 billion, also indexed annually. A corporation classified as a monopoly under the Economic Competition Law qualifies as a significant non-financial corporation when its annual sales turnover exceeds NIS 2 billion.[1]

A controlling shareholder or a holder of 5% of a significant non-financial corporation may not simultaneously control a significant financial entity or hold more than 10% of it; where no party controls the financial entity, the permitted holding is reduced to 5%.[1] Transitional restrictions applied from December 2017 when non-financial activity expanded through acquisitions, while the full prohibition on simultaneous holdings or control took effect in December 2019.[1]

Separately from the 2013 Concentration Law, Israel's Restrictive Trade Practices Law was amended on 17 November 2014.[9] The amendment authorized the Restrictive Business Practices Court to compel a monopoly, or a member of a concentration group, to sell assets when its practices were found to harm or threaten business competition or the public.[9]

The amendment became immediately relevant in a major antitrust dispute over development of the Leviathan natural-gas field. In December 2014, Israel's Antitrust Authority declined to approve a consent decree for Leviathan's development because of concerns about monopolistic effects on Israel's energy market.[9] A government committee later proposed allowing Noble Energy and Delek Group to retain stakes in Leviathan if Delek fully divested from the Tamar field and Noble sold part of its Tamar stake; both companies rejected the proposal at the time.[9]

The legislation passed its second and third Knesset readings with 72 members voting in favor and one abstaining.[10] Implementation was phased over six years, with the central provisions reaching full effect by December 2019.[1]

The Committee for the Reduction of Concentration published 27 opinions between 2015 and 2019, and 75 entities had been designated as concentrated by September 2019.[1] The law applied to large financial-industrial complexes with holdings in sectors including cellphone services, gas stations, supermarkets, and food production.[10]

Between publication of the competitiveness committee's interim recommendations in October 2011 and December 2019, 25 business groups took measures to dismantle their pyramidal structures, affecting 50 affiliated companies. Twenty-nine of those companies were delisted from the Tel Aviv Stock Exchange after the law took effect, while 14 of the 50 reported that their restructuring was undertaken to meet the law's provisions.[1]

Bank-credit concentration also declined. The share of business-sector bank credit extended to the 20 largest borrower groups fell from 54.6% in 2008 to 45.6% in 2013 and 30.4% in 2017, while the absolute amount of credit to those groups declined from approximately NIS 209 billion to NIS 124 billion.[1] These shifts cannot be attributed solely to the Concentration Law because stricter banking-supervision rules, other structural reforms, business cycles, and broader economic events also affected credit allocation.[1]

Although a methodology for evaluating economy-wide concentration was published in 2019, the statutory scheme itself did not supply a structured methodological basis or precise metrics for identifying and measuring the phenomenon.[1][4] Provisions directing the formulation of economy-wide credit restrictions for business groups were never implemented under the Concentration Law.[1] The statutory annex also omits fields including banking, pensions, insurance, electronic and online media, and medicine from its list of essential infrastructure, potentially leaving important concentrations outside that part of the law's scope.[1]

A further analytical challenge is that companies began restructuring their ownership arrangements after publication of the competitiveness committee's recommendations but before the law was enacted, making it difficult to isolate the statute's independent contribution to the changes observed.[1] In a Winter 2012 symposium, economist Omer Moav argued that lower prices and greater social equity required more competition and less concentration, but questioned whether the Trajtenberg Committee's recommendations would achieve those goals. He also attributed high prices partly to tariffs and administrative restrictions on imports.[7] Those factors were outside the Concentration Law's three structural chapters.[1]