Can By-Product Lobbying Firms Compete?

Working Paper No. 00-02-03

31 Pages Posted: 25 Apr 2000

See all articles by Paul Pecorino

Paul Pecorino

University of Alabama - Department of Economics, Finance and Legal Studies

Multiple version iconThere are 2 versions of this paper

Date Written: August 2000

Abstract

Olson (1965) has argued that one way large groups overcome the free-rider problem is through by-product lobbying. The by-product firm sells a private good to potential members of the interest group and finances lobbying with its profits. It has been argued that by-product lobbying firms cannot survive competition with for-profit firms, since this would compete away monopoly rents, leaving the firm unable to lobby. In a model of monopolistic competition, I show that the by-product firm can enter the market, and earn enough profits to exceed the noncooperative level of lobbying. This is true despite the free entry of for-profit firms. A model of Bertrand competition is also analyzed. This paper provide strong theoretical support for the argument that by-product lobbying firms can successfully compete against for-profit firms.

Keywords: By-product lobbying, free-rider problem, collective action

JEL Classification: D7, H4

Suggested Citation

Pecorino, Paul, Can By-Product Lobbying Firms Compete? (August 2000). Working Paper No. 00-02-03, Available at SSRN: https://ssrn.com/abstract=223333 or http://dx.doi.org/10.2139/ssrn.223333

Paul Pecorino (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

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Tuscaloosa, AL 35487
United States
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