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(Market) power is (political) power! The pressure of declining competition on democracy

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  • Basihos, Seda

Abstract

I study how the concentration of market power among a restricted set of corporates leads to a concentration of political power that ultimately undermines democracy. Despite being a topic of longstanding discussion, this type of mechanism lacks empirical confirmation or rejection. My paper addresses this gap by shedding light on two global trends: increasing aggregate markups and democratic backsliding. Using panel data covering 80 countries (1990–2019), I identify a negative relationship between market power and democracy. After correcting for potential endogeneity, counterfactual estimates reveal that around a quarter of the recent democratic decline can be attributed to the concentration of market power. A detailed firm-level analysis confirms that the democracy-weakening effect is driven by the increasing political influence of high-markup firms at the very top of the size distribution. The findings show that this concentration of power undermines democracy directly through institutional erosion—by increasing corruption in electoral processes and across multiple dimensions of democratic governance, such as policy-making, implementation, and regulation.

Suggested Citation

  • Basihos, Seda, 2025. "(Market) power is (political) power! The pressure of declining competition on democracy," Journal of Comparative Economics, Elsevier, vol. 53(4), pages 1092-1117.
    • Handle: RePEc:eee:jcecon:v:53:y:2025:i:4:p:1092-1117
    DOI: 10.1016/j.jce.2025.07.010
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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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