Economics presents: Lorenzo Magnolfi

Lorenzo Magnolfi is an Assistant Professor of Economics at the University of Wisconsin - Madison. Professor Magnolfi will discuss his study, "Political Connections and Market Structure" (co-authored with Camilla Roncoroni)

Abstract:

This paper empirically investigates how political connections affect market structureand quantifies the welfare cost of political influence. We focus on a specific industry,grocery retail in Italy, where the largest firm is a network of consumer cooperatives thathas historical links to political parties. We estimate a game-theoretic model that accountsfor the interdependence among firms’ entry decisions and for the effect of political con-nections, allowing for connections to influence both firms’ payoffs from entry and theirinformation sets. In a counterfactual, we examine the effects of removing political con-nections. We find that consumers suffer substantially in markets where connections actmainly as barriers to entry of competitors of the connected firm, but can also stand to gainfrom connections where links with local politicians help the connected firm to overcomethe burden of entry regulation.

For more information, please contact Matt O'Keefe by email at mkokeefe@maxwell.syr.edu 
Sponsored by the Economics Department