Lobbying for Regulations: When Big Business Says Yes

Abstract

Do firms uniformly oppose regulations that increase production costs, or might industry leaders strategically support stricter standards as a competitive tool? We identify a specific mechanism through which large firms strategically support regulations to enhance their competitive position. Extending the Melitz-Chaney model of firm heterogeneity to incorporate government regulations and lobbying following Grossman-Helpman, we derive conditions under which regulations disproportionately burden smaller competitors while benefiting larger survivors through reduced competition. The model predicts that firm size is positively correlated with support for stringent regulations, but that larger sunk investments push firms to oppose such policies. To test these predictions, we develop a text-as-data approach using large language models to classify firm regulatory preferences from lobbying disclosures—a measurement challenge that has limited prior systematic analysis. Applying guided machine learning to over 20,000 U.S. lobbying reports, we confirm that larger firms are significantly more likely to support stricter regulations, especially in concentrated industries. Capital-intensive firms with high leverage and less redeployable assets tend to oppose regulations, suggesting that operational flexibility is crucial for extracting strategic benefits from regulatory changes.

Keywords: strategic lobbying, product standard regulations, firm heterogeneity, machine learning

JEL Classification: F12, D22, D72, L11, L51