Together or Alone in Lobbying for Trade Policy

This paper addresses the questions of whether lobbying individually or through a trade association affects policy outcomes and what factors affect the choice of the mode of lobbying. We compiled a novel data set of lobbying expenditures that allows us not only to disentangle the amount of money spent on lobbying for trade policy issues, but also the relative importance of individual versus joint lobbying in each sector. First, we find that the mode of lobbying affects policy outcomes: controlling for other determinants of protection and for the total amount of lobbying expenditures, non-tariff barriers are higher in sectors where lobbying expenditures by trade associations relative to lobbying expenditures by individual firms are higher. Second, we find that the choice of individual versus joint lobbying is related to characteristics of the sector: in sectors that are more ‘competitive’ we observe more joint lobbying (by trade association) relative to individual lobbying (by individual firms). More precisely, sectors where goods are more substitutable, where concentration is lower and the ratio of capital to labor is lower, tend to lobby relatively more through trade associations. We rationalize this evidence through a simple model where domestic oligopolists compete in the goods market with each other and with foreign competitors. Domestic producers have the option of setting a common tariff for the entire sector through a trade association that bargains with the government. Alternatively they can lobby the government individually to obtain protection that is tailored to their product. If they obtain a tariff on their direct foreign rival, the extent to which they can reap the benefits from such protection depends on how competitive the sector is. If products are highly substitutable, increasing the tariff on the most direct foreign rival does not allow the firm to increase its price and profits because it would lose market share and profits to domestic rivals. We show that if the degree of substitutability among products is high enough there are no incentives for a firm to lobby individually and therefore that sectors where products are more substitutable are more likely to display higher degrees of joint lobbying.