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

Seda Basihos

Journal of Comparative Economics, 2025, vol. 53, issue 4, 1092-1117

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.

Keywords: Democracy; Market power; Political power (search for similar items in EconPapers)
JEL-codes: L11 O50 P16 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:53:y:2025:i:4:p:1092-1117

DOI: 10.1016/j.jce.2025.07.010

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