Economic Liberties Reveals New Link Between Concentration and Corporate Lobbying

As corporate lobbying spending continues to rise, the American Economic Liberties Project today released "Democracy for Sale: Examining the Effects of Concentration on Lobbying in the United States." Authored by Economic Liberties' Fellow Reed Showalter, the report details how economic concentration trends predict lobbying spending in the years that follow industry consolidation.

"Concentrated markets are bad for consumers, bad for workers, and bad for innovation. But this research suggests that the concentration crisis in America is even more than a purely economic problem - it's also a democracy problem," said Economic Liberties' Fellow Reed Showalter. "We urgently need to understand and contain the power that monopolies have over the rest of us. Lawmakers, enforcers, and leaders cannot afford to ignore the widespread harms from concentration any longer."

The report includes statistical analyses of three industries -- internet companies, pharmaceuticals, and oil and gas -- which demonstrate that when competition dies out and an industry becomes more concentrated, dominant firms then expand their lobbying efforts to acquire political power. The analyses predominantly rely on two datasets: industry performance data from Compustat-CRSP and lobbying expenditures from the Center for Responsive Politics. The case studies specifically reveal that increases in concentration generally predict increases in lobbying spending three to four years later. In the oil industry, for example, it finds that concentration has a bigger impact on oil lobbying than oil pricesthemselves. The report also finds that the reverse is true -- when these industries became more competitive, their lobbying presence shrinks in the following years.

One key implication of the report is that the set of harms induced by concentration cannot be understood merely through the consumer welfare lens of analysis and its reliance on price theory. As Showalter suggests, "if corporate lobbying can be constrained by making markets more competitive, then antitrust and antimonopoly law--which already has increasing support from both parties--should be an essential part of the anti-corruption toolkit." To protect our democracy, the Biden administration, Congress, and state policymakers have to de-concentrate the economy by breaking up monopolies and preventing mergers.

Read "Democracy for Sale: Examining the Effects of Concentration on Lobbying in the United States" here.