Corporate lobbying, political action committees, and market concentration

Abstract This study examines whether firms that engage in political activity have greater market concentration. Drawing on public choice theory, we argue that firms pursue political connections to obtain favorable policies that create barriers to entry and weaken competition. Using both univariate and multivariate tests, we find that lobbying firms exhibit market concentration levels that are 7.4% to 10.5% higher than those of non-lobbying firms. These results are robust to the inclusion of year and industry fixed effects, as well as a wide set of firm-specific controls. We further show that firms contributing to political action committees (PACs) display greater market concentration, regardless of party affiliation. The effect is strongest when contributions are directed toward winning candidates. To strengthen causal inference, we conduct a series of difference-in-difference tests around the guilty plea of lobbyist Jack Abramoff, which has been used in the literature as an exogenous negative shock to the pecuniary benefits associated with lobbying activity. We find that lobbying firms experience a significant decline in market concentration, relative to non-lobbying firms, around the event. Together, these findings provide evidence that political activity can causally shape competitive outcomes.