Protection versus Free Trade: Lobbying Competition between Domestic and Foreign Firms

This article considers how political interaction between policymakers and domestic and foreign firms endogenously determines tariff rates. We show that because of lobbying competition between foreign and domestic firms, even a less competitive foreign firm can successfully elicit a tariff reduction...

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Bibliographic Details
Published in:Southern economic journal 2014-10, Vol.81 (2), p.489-505
Main Authors: Cai, Dapeng, Li, Jie
Format: Article
Language:English
Subjects:
Aggregate income
Business structures
Competition
Competitive advantage
D72
Domestic markets
Economic competition
Economic theory
Enterprises
F12
F13
Foreign enterprises
Free trade
International trade
Lobbying
Market power
Market share
Market shares
Policy making
Political behavior
Political economy
Social welfare
Studies
Tariff reductions
Tariffs
Trade policy
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Description
Summary:This article considers how political interaction between policymakers and domestic and foreign firms endogenously determines tariff rates. We show that because of lobbying competition between foreign and domestic firms, even a less competitive foreign firm can successfully elicit a tariff reduction under reasonable conditions. Moreover, lobbying competition may also increase the level of aggregate domestic welfare when the market powers of the competing firms are sufficiently alike.
ISSN:0038-4038
2325-8012
DOI:10.4284/0038-4038-2012.144