Collusion, Collective Action and Protection: Theory and Evidence

This paper provides a novel explanation forthe formation of protectionist lobby groupsin imperfectly competitive sectors. Thelevel of collusion is shown to be a crucialdeterminant of the ability of firms tosustain lobbying. We show that greatercollusion reduces firm contributionsto tariff lobbying, when the governmentvalues welfare sufficiently and thecross-price elasticity between the domesticand foreign goods is sufficiently high. The empirical evidence from the U.S.supports the theory. Greater collusionreduces the level of PAC contributions.