Can By-Product Lobbying Firms Compete?
Posted: 27 Feb 2001
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: Suggested Citation