On the Efficiency of By-Product Lobbying

To explain the existence of large lobbying groups, Olsonproposes a `by-product theory': large lobbies are by-productsof industry associations that operate as monopolists inprivate goods markets. This paper explicitly formulatesOlson's by-product theory of lobby funding and examines itsefficiency as a funding method. Lobbying efficiency isenhanced by the association's ability to price-discriminate.Price discrimination, in turn, is facilitated by theassociation's superior knowledge of its members'characteristics. The paper also examines the relationshipbetween lobby strength and industry size, as well as thequestion of `who exploits whom' under by-product lobbying.