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Protection for Sale: The case of oligopolistic competition and interdependent sectors

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  • Elena Paltseva
Abstract
In Grossman‐Helpman's (1994) canonical “Protection for Sale” (PFS) model, political competition among industry lobbies is driven purely by their interests as consumers. This paper introduces demand linkages and oligopolistic competition into the PFS framework to address the rivalry among lobbies stemming from product substitutability. It shows that increased substitutability weakens the interest groups' incentives to lobby and reduces tariff distortions. This may explain why empirical tests of PFS find surprisingly little impact of lobbies on the government's trade policy decision. The paper also analyzes endogenous lobby formation, suggesting that demand linkages may adversely affect the industry decision to organize. Protéger les ventes : le cas de la concurrence oligopolistique et des secteurs interdépendants. Dans le modèle canonique de Grossman‐Helpman (1994) ≪ Protection for Sale ≫ (PFS), la concurrence politique entre lobbyistes est purement alimentée par leurs intérêts en tant que consommateurs. Ce texte présente dans ce cadre d'analyse les enchaînements de la demande et la concurrence oligopolistique pour prendre en compte la rivalité entre lobbyistes qui dérive de la substituabilité des produits. On montre qu'une substituabilité accrue réduit l'incitation des groupes d'intérêts á faire du lobbying et réduit les distorsions tarifaires. Cela peut expliquer pourquoi les tests empiriques du modèle PFS ont découvert un impact étonnamment faible des lobbies sur les décisions des gouvernements dans le monde des politiques commerciales. Le texte analyse aussi la formation endogène des lobbies – suggérant que les enchaînements de la demande peuvent affecter négativement la décision de s'organiser.

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  • Elena Paltseva, 2014. "Protection for Sale: The case of oligopolistic competition and interdependent sectors," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(4), pages 1195-1216, November.
    • Handle: RePEc:wly:canjec:v:47:y:2014:i:4:p:1195-1216
    DOI: 10.1111/caje.12106
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    1. Baldwin, Richard & Robert-Nicoud, Frédéric, 2006. "Protection for Sale Made Easy," CEPR Discussion Papers 5452, C.E.P.R. Discussion Papers.
    2. Chang, Pao-Li, 2005. "Protection for sale under monopolistic competition," Journal of International Economics, Elsevier, vol. 66(2), pages 509-526, July.
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    9. Devashish Mitra, 2016. "Endogenous Lobby Formation and Endogenous Protection: A Long-Run Model of Trade Policy Determination," World Scientific Book Chapters, in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 1, pages 3-21, World Scientific Publishing Co. Pte. Ltd..
    10. Olivier Cadot & Jaime de Melo & Marcelo Olarreaga, 2015. "Lobbying, Counterlobbying, and the Structure of Tariff Protection in Poor and Rich Countries," World Scientific Book Chapters, in: Modeling Developing Countries' Policies in General Equilibrium, chapter 13, pages 295-316, World Scientific Publishing Co. Pte. Ltd..
    11. Kishore Gawande & Pravin Krishna & Michael J. Robbins, 2006. "Foreign Lobbies and U.S. Trade Policy," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 563-571, August.
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    1. Stephen Devadoss & Jeff Luckstead, 2020. "US–Brazilian cotton policies," The World Economy, Wiley Blackwell, vol. 43(8), pages 2222-2236, August.
    2. Kato, Hayato, 2015. "Lobbying and Tax Competition in an Agglomeration Economy: A Reverse Home Market Effect," CCES Discussion Paper Series 56, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    3. Hayato Kato, 2018. "Lobbying and tax competition in an oligopolistic industry: a reverse home-market effect," Spatial Economic Analysis, Taylor & Francis Journals, vol. 13(3), pages 276-295, July.
    4. Barbara Annicchiarico & Enrico Marvasi, 2018. "Protection for Sale with Price Interactions and Incomplete Pass-Through," CEIS Research Paper 435, Tor Vergata University, CEIS, revised 08 Jun 2018.
    5. Ahmed Waqar Qasim & Jun-ichi Itaya, 2019. "Heterogeneous Firms and Lobby Participation Decision," Economics Bulletin, AccessEcon, vol. 39(4), pages 2415-2422.
    6. Annicchiarico, Barbara & Marvasi, Enrico, 2019. "Protection for sale under monopolistic competition: Beyond the CES," European Journal of Political Economy, Elsevier, vol. 60(C).

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