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Lobbying and Regulation in a Political Economy: Evidence from the US Cellular Industry

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  • Tomaso Duso
Abstract
This paper develops a political-economy model of price regulation. Firms' lobbying activity for a given regulatory status might generate a simultaneity problem between the effects and the determinants of regulatory decisions. We explicitly model this two way causality, and empirically test our model in the U.S. mobile telecommunications industry. We find support for our approach: Regulatory choice should be considered endogenous. Accounting for the simultaneity bias, we show that regulation, whenever it actually took place, did not reduce significantly cellular tariffs. However, it would have been more effective if applied in those markets which have not been regulated. To explain this finding, we show that firms' lobbying activity on regulatory choice has been successful, so that firms were able to avoid regulation in those markets where it would have been more effective. From the political economy side, we provide evidence that the probability of price regulation was higher, ceteris paribus, when the regulator was elected by politicians, when the state's governor came from the Republican Party, when the government was politically stable, and when the regulation's opportunity costs were low. ZUSAMMENFASSUNG: (Lobbying und Regulierung in einer politischen Ökonomie: Evidenz aus der US-amerikanischen Mobilfunk-Industrie) In diesem Beitrag wird ein polit-ökonomisches Modell der Preisregulierung entwickelt. Es wird explizit berücksichtigt, dass die Unternehmen die Regulierungsentscheidung der Aufsichtsbehörde beeinflussen können, um ihre Interessen zu vertreten, und deswegen kann ein Simultaneitätsproblem zwischen den Determinanten und den Wirkungen der Regulierungsentscheidung entstehen. Anhand von US-amerikanischen Daten für die Mobilfunk-Industrie (1984-1988) kann die Hypothese, dass die Regulierungsentscheidung endogen durch das Verhalten der Unternehmen am Markt mitbestimmt wird, nicht verworfen werden. Bei Berücksichtigung dieser Simultaneität kann gezeigt werden, dass die Regulierung die Mobilfunktarife nicht stark gesenkt hat, wo sie angewandt wurde. Jedoch zeigt das ökonometrische Modell, dass die Regulierung gerade in solchen Märkten effektiver gewesen wäre, die tatsächlich nicht reguliert wurden. Dieses Phänomen lässt sich durch die Theorie des Lobbying erklären. Bewirkt Regulierung große Preissenkungen, so haben die Unternehmen einen großen Anreiz durch Lobbying eine Regulierung der Mobilfunktarife abzuwehren, mit der Wirkung, dass seltener reguliert wird. Sind die Wirkungen der Regulierung hingegen gering, so sind auch die Lobbying-Anreize klein und Regulierung wird häufiger beobachtet. Außerdem zeigt sich, dass die Regulierungswahrscheinlichkeit eines Marktes - ceteris paribus - stieg, wenn die Regulierungsbehörde von Bürgern gewählt wurde, wenn der Gouverneur des Bundesstaats der republikanischen Partei angehörte, wenn die Regierung politisch stabil war und wenn die Opportunitätskosten der Regulierung gering waren.

Suggested Citation

  • Tomaso Duso, 2001. "Lobbying and Regulation in a Political Economy: Evidence from the US Cellular Industry," CIG Working Papers FS IV 01-03, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    • Handle: RePEc:wzb:wzebiv:fsiv01-03
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    More about this item

    Keywords

    Price Regulation; Political Economy; Lobbying Activity; Simultaneity Bias; Endogenous witching Regression; Mobile Telecommunications; U.S.;
    All these keywords.

    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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