Political Power and Market Power

CEPR Discussion Paper No. DP17178

72 Pages Posted: 16 Mar 2023 Last revised: 24 May 2023

See all articles by Bo Cowgill

Bo Cowgill

Columbia University - Columbia Business School

Andrea Prat

Columbia University - Columbia Business School, Finance; Centre for Economic Policy Research (CEPR)

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: March 16, 2023

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

Suggested Citation

Cowgill, Bo and Prat, Andrea and Valletti, Tommaso M., Political Power and Market Power (March 16, 2023). CEPR Discussion Paper No. DP17178, Available at SSRN: https://ssrn.com/abstract=4390776 or http://dx.doi.org/10.2139/ssrn.4390776

Bo Cowgill (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Andrea Prat

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Tommaso M. Valletti

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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