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Mergers, Lobbying, and Elections: Is there a "Curse of Bigness"?

Author

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  • Broso, Matteo
  • Valletti, Tommaso

Abstract

We study the impact of mergers on quid-pro-quo lobbying and elections in a political agency model. Two incumbent firms can lobby an incumbent politician to block a pro-competitive reform. The politician’s type determines whether they are susceptible to the firms’ influence or not. A representative voter tries to infer the politician’s type monitoring the policy-making process. We show that lobbying increases when firms merge because rents from political protection are not dissipated by price competition. While greater market concentration may increase prices and political influence, it also improves voters’ ability to screen bad politicians by observing distorted policy outcomes. This generates a novel trade-off: mergers can harm consumers through market and political power, yet improve selection of politicians. We characterize when standard consumer welfare–based merger control is too lenient or too strict once these political economy effects are taken into account.

Suggested Citation

  • Broso, Matteo & Valletti, Tommaso, 2026. "Mergers, Lobbying, and Elections: Is there a "Curse of Bigness"?," CEPR Discussion Papers 21420, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21420
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    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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