Political Power and Market Power

Abstract

Brandeis (1914) hypothesized that firms with market power will also attempt to gain political power. To explore this hypothesis empirically, we combine data on mergers with data on lobbying expenditures and campaign contributions in the US from 1999 to 2017. We pursue two distinct empirical approaches: a panel event study and a differential exposure design. Both approaches indicate that mergers are followed by large and robust increases in lobbying activity, both by individual firms and by industry trade associations. There is also some evidence for an association of mergers with campaign contributions. Mergers are also associated with extensive margin changes such as the formation of in-house lobbying teams and corporate PACs. We interpret these results within an oligopoly model augmented with endogenous regulation and lobbying.

Keywords: Political influence, lobbying, mergers, industrial concentration.

JEL Classification: D72, L51, G34, L10