Can Lobbyists Prevent Consumer Monopsony? Evidence from the US Telecommunications Sector

Abstract:     
Local exchange carriers maintain significantly smaller capital stocks in states that restrict campaign contributions. This relationship is difficult to rationalize as (i) an artifact of endogeneity bias or (ii) evidence that restrictions constrain producers' monopolistic opportunities. Instead, it finds a robust explanation in standard political economy models - i.e., restricting campaign contributions can retard economic performance by facilitating consumers' monopsonistic ambitions, weakening regulatory commitments, and easing the expropriation of real options.

Keywords: Campaign Finance Laws, Regulatory Capture, Credible Commitment, Real Options, Competition Policy, Economic Performance

JEL Classifications: D72, E61, H11, K23, L43, L51, L96, M38

Working Paper Series