Fundamentals

Economic Competition and Political Power: How They Interact

By Daniel Sardá · Published on September 06, 2026

7 min read1,515 words

A business can win customers by improving its offer or seek rules that protect its position. Distinguishing these strategies helps explain how markets and political power interact.

Imagine two freight transport companies. One invests in better route planning to offer faster deliveries. The other asks the authorities to reserve operating permits for companies already providing the service. Both want to improve their position, but their chosen approach changes what competitors and customers can do.

The first seeks to win business with a more attractive offer. The second wants a public decision to limit the available alternatives. This is a hypothetical example: the same company could pursue both strategies, and not every request for regulation aims to close a market to competitors.

The relationship between economic competition and political power runs in both directions. Businesses can influence public decisions; those decisions, in turn, can open up opportunities or protect established positions. Understanding this relationship requires examining specific mechanisms. A company's size is not proof of abuse, and a regulation's cost is not proof of capture.

Having many customers is not the same as governing

Economic competition is the rivalry to attract buyers through price, quality, innovation or other terms. The number of businesses matters, but so does whether customers can switch suppliers and whether new alternatives can realistically emerge.

Three concepts need to be kept separate. Concentration describes the extent to which a market's sales are held by a small number of firms. Market power refers to the ability to raise prices above a competitive level; whether it persists depends on the available alternatives and the barriers that prevent other suppliers from responding. Abuse is a separate question, concerning conduct and its effects.

A company may grow because it produces more efficiently or introduces a valuable innovation. It may also maintain its position through practices that make it harder for rivals to enter. The FTC's guidance on monopolization distinguishes competitive success from exclusionary conduct and emphasizes the importance of substitutes and barriers to entry. This is U.S. guidance: the distinction is useful here, without extending its legal rules to other countries. FTC, *Monopolization Defined*.

Political power is different in nature: the state sets and enforces binding rules. A business may have the resources to try to influence those rules, but influence alone does not amount to control over public authority. That stronger claim requires additional evidence.

Key idea: A company's size, market power and political influence are related questions, but none automatically establishes the others.

From providing information to securing protection

Public authorities need information to make decisions. A business may explain the cost of complying with a rule, identify a technical difficulty or propose a change. Workers, consumers and potential competitors also have relevant information and interests. Participation in that debate can be legitimate, even when each participant is arguing for their own position.

The problem arises when a decision is directed toward protecting earnings from competition. In our example, devoting resources to securing permits reserved for existing operators would be a form of political rent-seeking: seeking an advantage through government protection. The term does not refer to rental payments for property, nor does it make all business profits suspect.

Chapter 3 of the UNDP's 2021 Regional Human Development Report examines how resources devoted to preserving advantages can connect market power with political influence. Its analysis concerns Latin America and the Caribbean; it helps explain a possible mechanism, without attributing it to every business or society. UNDP, 2021 Regional Human Development Report, Spanish edition.

Regulatory capture involves more than a request made in one's own interest: it is a persistent shift in regulatory decisions toward particular interests. It can involve bribery, but also legal channels, such as selectively supplying information or having disproportionate access to decision-makers. The OECD discusses these mechanisms in its analysis of public policy capture. OECD, *Preventing Policy Capture*.

A meeting with officials or a favorable decision is therefore not enough to establish capture. We would need to examine how the decision was made, what information was considered, whose voices were left out and whether there is a pattern of protection for particular interests. Lobbying, corruption and capture are not synonyms.

Rules also determine who can compete

Return to the transport permit. If only companies already operating can obtain it, a new company would be excluded even if it could provide a safe, less expensive service. The barrier would be the requirement chosen by the authority, rather than an inability to win customers.

Now change the rule: every vehicle must pass a safety inspection. The requirement has a cost, but it could address a real risk. To assess it, we would need to ask whether the inspection measures that risk, whether new operators can meet its requirements and whether an equally effective, less restrictive alternative exists. The cost alone does not establish a privilege.

This distinction helps us assess economic regulation by its justification and effects. A rule written to apply to everyone can be especially burdensome for prospective entrants. A requirement for many years of prior operation, for example, calls for an explanation of why that experience is necessary to achieve the stated goal.

There are also private barriers. A company might try to block access to resources or channels needed to compete. Determining whether a practice unjustifiably excludes rivals requires examining its effects and possible efficiency justifications; not every exclusive contract constitutes abuse. The FTC includes barriers and exclusionary conduct in this analysis. FTC, *Monopolization Defined*.

Useful distinction: A general rule can protect buyers or shield established suppliers. To tell the difference, examine what it requires, why it requires it and whom it allows to enter.

From a classical liberal perspective, freedom of entry and impartial rules are central criteria. Defending them requires examining both public and private restrictions. Support for open markets can conflict with the interests of business owners who would prefer protection from new rivals.

When one advantage helps preserve the next

Suppose the restricted permit is approved. The company benefiting from it faces less exposure to new competitors. If that protection allows it to retain earnings that entry would have put at risk, it may have resources to defend the rule's continuation: hiring advisers, funding studies or participating more intensively in the regulatory process.

A possible feedback loop emerges. A political advantage protects an economic position; that position provides resources to try to preserve the political advantage. The UNDP report examines this mutual reinforcement between the two forms of power within its regional context. UNDP, chapter 3, Spanish edition.

The sequence is conditional. It assumes that the permit actually blocks entry, that it produces meaningful advantages and that business resources succeed in influencing future decisions. If any of these connections fails, the loop may weaken. The ability to spend does not guarantee that the desired rule will be adopted.

The example helps identify a mechanism, but it does not demonstrate that the mechanism is present in a real case. Investigating one would require examining the rule's design, its beneficiaries, the alternatives rejected and the actions of those involved. Observing high profits after a public decision does not, by itself, answer all those questions.

Which limits help—and what they cannot promise

Opening up opportunities for entry can reduce the protection of established positions. Competition does not automatically eliminate business influence, however, and giving an authority more powers does not ensure impartial decisions. That authority also needs checks on its own actions.

The OECD proposes inclusive participation, transparency, accountability and integrity to reduce the risk of capture. These are institutional safeguards, not guarantees of results: disclosing a meeting helps establish who took part, but does not demonstrate that all arguments were properly weighed. OECD, *Policy Framework on Sound Public Governance*, Box 2.2.

The rule of law provides a complementary standard: predictable rules, impartial enforcement and limits on discretionary power. As an institutional principle, decisions restricting entry should be publicly justifiable and subject to review. An authority's autonomy must coexist with an obligation to answer for its decisions.

Guiding principle: Protecting competition requires scrutiny of both business privileges and the scope for arbitrary action by regulators.

Four questions can help assess a particular measure:

• What problem does it seek to solve, and what evidence supports that need?
• Can a capable new competitor comply, or does it favor conditions that only existing operators meet?
• Were alternatives considered and voices beyond the businesses benefiting from the measure heard?
• Are reasons given for the decision, and can it be reviewed through impartial procedures?

In the transport example, an inspection open to any operator able to meet its requirements calls for a different assessment from a permit reserved on the basis of years in operation. The decisive question is whether the rules allow someone to challenge existing suppliers by offering a better service. That practical opportunity to compete helps distinguish an advantage earned with customers from a position protected by political power.