From Economic Power to Political Power

The paper presented in this ZEW Research Seminar investigates the conditions under which powerful private actors, such as multinational technology firms or wealthy individuals, can openly challenge the authority of sovereign governments, using a conict between Elon Musk and the Brazilian Supreme Court in 2024 as a case study. The authors construct a series of game-theoretic models to analyze how co-investment in public infrastructure by private firms can create vulnerabilities for states, especially in digital markets where services can be withdrawn at short notice. The models reveal that a firm's economic power can translate into political power when governments become dependent on private investment, and that repeated interactions increase the risk of such confrontations. Empirical illustrations including cases involving Google, Meta, and OpenAI underscore the growing potential for corporate actors to exert political inuence, sometimes even at the expense of profit. The paper concludes with policy recommendations to mitigate the risks of private actors undermining democratic governance.