Market Power Is Power

We argue that in market democracies firms can wield political power through a mechanism that does not rely on lobbying, campaign contributions, or persuasion. When voters cannot commit to future regulation, firms can use irreversible technological investments to reshape ex-post political incentives. We call this mechanism the political hold-up problem. We show that, in equilibrium, a firm's de facto power to avoid regulation coincides with standard measures of market power. This form of power is robust to a wide range of regulatory instruments, including bans, taxes, self-regulation, and delegation to technocrats, and limits the effectiveness of reforms targeting political influence. The political hold-up problem distorts the direction of technological progress and may increase political demand for populism and nationalization. Institutional remedies instead require commitment: supermajoritarian institutions and independent oversight of industry standards.