Why do we need competition policy?

Summary

This video discusses the crucial role of competition policy in maintaining a healthy economy, emphasizing how it helps keep prices low and drives innovation. The speaker highlights their research, which reveals a link between market power and political influence, showing that mergers lead to increased lobbying expenditures. The research challenges the past assumption that company size doesn't matter, suggesting that large firms can exert significant political influence, impacting democratic processes. The speaker underscores the importance of considering the political power tied to market power in economic policy.

Takeaways

• 😀 Competition is crucial for consumers and citizens, as it drives a healthy, well-functioning economy by keeping prices low and encouraging innovation.
• 😀 Without competition, prices rise, and innovation stagnates, as seen in the current cost of living crisis.
• 😀 Market power and political power are linked, as demonstrated by research using data on company identities, mergers, lobbying activities, and political donations.
• 😀 Mergers have a direct impact on lobbying expenditures, with typical mergers increasing lobbying expenses by $20,000 annually.
• 😀 Over the past 22 years, lobbying activities have increased, reflecting the growing political influence of large companies.
• 😀 The research challenges the previous assumption in economics that size doesn't matter, arguing that size does have significant implications.
• 😀 The traditional view that big firms only increase prices is being revisited, with a focus on the political influence that size can bring.
• 😀 The direct link between corporate size and political power has an effect on the democratic process, which should be considered in economic discussions.
• 😀 Companies with more market power tend to have more influence on policy-making, which can affect the public and consumer welfare.
• 😀 The research suggests that we need to reconsider how we assess the power and influence of large firms, not just in economic terms but also politically.

Q & A

Why does competition matter for consumers and citizens?

Competition is essential because it drives a well-functioning economy, keeps prices low, and encourages innovation. Without competition, prices rise and companies may not invest as much, leading to less innovation and higher costs for consumers.

What is the relationship between market power and political power?

Market power and political power are interconnected. Companies with greater market power often have more political influence, which can affect the democratic process. This relationship is explored through data on mergers, lobbying activities, and political donations.

How has lobbying activity changed in the last 22 years?

Over the past 22 years, lobbying activities have increased. Companies are spending more on lobbying efforts, particularly in the context of mergers, which cause an increase in lobbying expenditures by about $20,000 per year.

What does the research suggest about the impact of mergers on lobbying activities?

The research indicates that mergers lead to an increase in lobbying activities. Specifically, the typical merger results in an increase of about $20,000 annually in lobbying expenditures.

How does the size of a company relate to its political influence?

The size of a company is directly linked to its political influence. Larger firms, due to their increased market power, are able to exert more influence on the political system, which can shape policy and impact the democratic process.

What traditional economic presumption does this research challenge?

This research challenges the long-standing economic presumption that 'size doesn't matter' in the context of firms. It argues that size does indeed matter, not just in terms of pricing, but also in terms of political influence.

How does the research suggest we view the role of size in firms?

The research suggests that size should be considered as a factor that impacts more than just pricing. Large firms not only have economic power but also significant political influence, which can affect policies and regulations.

What data sources were used in the research?

The research uses data from Compustat (on company identities), Zephyr (on mergers), and Lobbyview (on lobbying activities and political donations) to examine the relationship between market power and political power.

What are the potential implications of this research for economic policy?

The research highlights the need for policymakers to consider the broader implications of corporate size, especially its impact on political influence. It suggests that large firms may use their power to shape policies that benefit them, potentially undermining democratic processes.

What is the significance of this research in terms of economic theory?

This research revives the idea that company size matters in economics, especially in terms of its influence on politics. It challenges the modern belief that market power does not significantly affect political power, suggesting that size has broader implications than previously considered.