Collusion, collective action and protection: Theory and evidence

This paper provides a novel explanation for the formation of protectionist lobby groups in imperfectly competitive sectors. The level of collusion is shown to be a crucial determinant of the ability of firms to sustain lobbying. We show that greater collusion reduces firm contributions to tariff lobbying, when the government values welfare sufficiently and the cross-price elasticity between the domestic and foreign goods is sufficiently high. The empirical evidence from the U.S. supports the theory. Greater collusion reduces the level of PAC contributions.