Can By-Product Lobbying Firms Compete?

Posted: 27 Feb 2001

See all articles by Paul Pecorino

Paul Pecorino

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

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Abstract

Olson (1965) argues that some large groups can overcome the free-rider problem 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. Others argue 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.

Keywords: By-product lobbying, Free-rider Problem, Collective Action

JEL Classification: D7, H4

Suggested Citation

Pecorino, Paul, Can By-Product Lobbying Firms Compete?. Available at SSRN: https://ssrn.com/abstract=258308

Paul Pecorino (Contact Author)

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

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