Tech’s Lobbying Push Follows Market Consolidation, Study Shows

(Bloomberg) -- The flood of lobbying dollars spent by tech companies has increased with market concentration, according to a new study that cites similar patterns in the pharmaceutical and oil industries. 

The report suggests that entrenched firms face less competition and don’t have to invest as much in innovation, giving them more resources to spend influencing the democratic process. 

Reed Showalter, an attorney with the anti-monopolist group American Economic Liberties Project who wrote the study, said policy makers and antitrust enforcers should look beyond the impact that mergers have on consumers and consider how market concentration affects the democratic process.

“We need to more closely scrutinize various elements of competition policy that have allowed industries to become more concentrated over the last 30 to 40 years,” Showalter said in a phone interview Tuesday. “Allowing unchecked concentration is the cause for a lot of the democratic harms that we’re also seeing people complain about as big money enters politics. There’s no coincidence there.”

The study supports the argument of a group of scholars, many of whom have joined President Joe Biden’s administration, and lawmakers advocating for more robust antitrust enforcement. This school of thought traces its roots back a century to the country’s first anti-monopoly laws, arguing that modern enforcement needs to return to vigorous trust-busting intended to protect not only consumers, but also small competitors and even democracy itself. 

Federal Trade Commission Chair Lina Khan warned last month that the U.S. economy is experiencing a “tidal wave” of mergers that threatens to overwhelm federal agencies. Companies have announced more than $3 trillion of deals so far in 2021, an unprecedented number that puts this year on track to be the most active ever, according to data compiled by Bloomberg.

Influence Lags

The American Economic Liberties Project’s study found that market concentration was closely correlated with an industry’s lobbying expenditures several years later, reflecting a lag in the ability of dominant firms to wield political power. The study used the Herfindahl–Hirschman Index (HHI), a measure of how concentrated a market is.

In the case of the tech industry, increased market concentration was followed by larger lobbying expenditures four years later. 

Because the tech industry is relatively young, lobbying spending went from a negligible amount in 1998, the first year of the study, to $80 million in 2020. This compares with the more than $306 million that the pharmaceutical industry spent lobbying the federal government last year. The study used Senate reports on lobbying disclosures compiled by the Center for Responsive Politics. 

The study found that changes in concentration in the pharmaceutical industry were followed by shifts in lobbying expenditures three years later. 

Like pharmaceuticals, the oil and gas industry has a lot at stake in public policy, spending more than $112 million on lobbying last year. While energy production is subject to various outside factors, including geopolitics, the study still found that market concentration foreshadowed higher lobbying expenditures four years later. 

The study includes several caveats, including the challenge of quantifying market concentration, a caution against implying increased consolidation alone causes a rise in lobbying spending, and the difficulty of isolating factors in a “very complex political dynamic.” Still, the report finds a “significant empirical link between increased corporate consolidation and increased corporate political power,” especially given the similarities across three industries. 

This has implications not just for the economy, but also for the health of U.S. democracy, Showalter said in the report’s conclusion. He said the traditional measure used by antitrust enforcers to evaluate competitive harm, known as the consumer welfare standard, is insufficient because it focuses primarily on price effects.

“There is no world in which concentration exclusively produces consumer harms,” Showalter said. “It produces citizen harms.”

The study cites policy recommendations from the House antitrust subcommittee’s 2020 investigation of Amazon.com Inc., Facebook Inc., Apple Inc. and Alphabet Inc.’s Google. Showalter, along with FTC Chair Khan, worked on the probe and the resulting report as an antitrust subcommittee staff member. 

He also previously worked as a research assistant at Columbia University Law School for for anti-monopolist scholar Tim Wu, who Biden tapped to lead the administration’s tech and competition policy. Showalter is also an associate at the law firm of Jonathan Kanter, Biden’s pick to lead the Justice Department’s antitrust division. 

This year, the antitrust subcommittee’s report was used to shape a series of bipartisan bills aimed at limiting tech companies’ power. Industry groups criticized those measures, which haven’t advanced beyond the House Judiciary Committee, as dangerous for user privacy and harmful to U.S. innovation. 

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