By: Laura Alexander (Washington Center for Equitable Growth)
Consolidation of markets at the hands of U.S. companies that are actively engaged in mergers and acquisitions raises an important question about the political ramifications of market concentration. Do mergers and acquisitions impact the lobbying clout of these acquisitive firms? A new working paper delves into this connection and finds some intriguing, if also preliminary, affirmative evidence.
“Political Power and Market Power,” by Bo Cowgill and Andrea Prat at Columbia Business School and Tommaso Valletti at the Imperial College Business School, documents a positive association between mergers and lobbying activities, and finds some evidence for a positive association of mergers with political campaign contributions. These findings and the economic model the co-authors employ in their research are not robust enough, as is, for U.S. antitrust enforcers to measure these connections between political power and market concentration quantitatively, though the findings advance conceptional frameworks for better understanding this nexus in the qualitative context of the political economy of the United States.
But first, let’s briefly examine the findings and methodology of the new working paper. Cowgill, Prat, and Valletti develop a model that extends a standard theoretical model of industrial organization and competition to include government regulatory variables. They then use two different empirical approaches to study the relationship between merger data and lobbying spending data. Specifically, they match data from 1999 to 2017 of companies registered with the U.S. Securities and Exchange Commission with data on federal lobbying from the nonprofit data science firm LobbyView, campaign contributions tracked by the nonprofit government transparency organization OpenSecrets, and mergers and acquisitions transactions from the SDC Platinum Financial Securities Data, provided by Refinitiv (formerly Thomson Reuters).
The co-authors find that increases in lobbying spending associated with mergers is modest, at around 22 percent, or around $74,000 to $106,000 per 6-month period of analysis. The increase in campaign contributions is only $4,000 to $10,000 per 6-month period and is not statistically significant in all specifications. But the authors do find that larger mergers and mergers between companies in the same industry are more strongly associated with increased lobbying spending, which is consistent with the idea that the increase in this spending is associated with increased market power…