Ulric B. and Evelyn L. Bray Social Sciences Seminar

Tuesday, June 7, 2022
4:00pm to 5:00pm
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Baxter Lecture Hall
Market Competition and Political Influence: An Integrated Approach
Dana Foarta, Assistant Professor of Political Economy, Stanford Graduate School of Business,

Abstract: The operation of markets and of politics are in practice deeply intertwined. Political decisions set the rules of the game for market competition and, conversely, market competitors participate in and influence political decisions. We develop an integrated model to capture the circularity between the two domains. We show that a positive feedback loop emerges such that market power begets political power, and political power begets market power, but that this feedback loop is bounded. With too much market power, the balance between politics and markets itself becomes lopsided and this drives a wedge between the interests of a policymaker and the dominant firm. Although such a wedge would seem pro-competitive, we show how it can exacerbate the static and dynamic inefficiency of market outcomes. More generally, our model demonstrates that intuitions about market competition can be upended when competition is intermediated by a strategic policymaker.

Joint work with Steve Callander and Takuo Sugaya

For more information, please contact Letty Diaz by phone at 626-395-1255 or by email at letty.diaz@caltech.edu.