How to win the political contest: A monopolist vs. environmentalists

This paper sheds light on the political economy of local energypolitics both from a theoretical and an empirical perspective.First, a case study of a small town in Southern Germany(Schönau) is presented, where environmentalists have won thepolitical contest against the regional energy monopolist and havefounded an energy supply firm themselves. The different stagesof the political process are explained and analysed. Second, apolitical economy model is developed, where environmentalists anda monopolistic utility firm confront each other both on thepolitical and on the energy market. In the lobbying equilibriumthe probability of the environmentalists' winning the gamedepends on the monopoly rent and the perceived social costs ofenergy production. It is shown that it is optimal for themonopolist to reduce his output below the monopolistic output.Finally, the winning strategy in the Schönau case is discussedin the light of the theoretical results of the paper.