Journal of Competition Law and Economics Advance Access published online on June 4, 2008
Journal of Competition Law and Economics, doi:10.1093/joclec/nhn014
CAN LOBBYING PREVENT ANTICOMPETITIVE OUTCOMES? EVIDENCE ON CONSUMER MONOPSONY IN TELECOMMUNICATIONS
JEL: D72, E61, H11, K23, L43, L51, L96, M38
When basic competition rules cannot stop market power abuses, industry-specific regulations can improve economic performance. But regulations are also more immediately exposed to political pressures than are judicially administered antitrust laws, and this exposure can cause regulations to serve distributional rather than efficiency goals. Instead of supporting a Chicago School hypothesis where distributional forces tend to favor producers, however, I find evidence that regulations can inefficiently expand consumer surplus when producers lack a political voice. In particular, local exchange carriers maintain significantly smaller capital stocks in states that restrict campaign contributions from regulated utilities. This relationship is difficult to rationalize as either a statistical artifact or evidence that campaign finance laws discourage producers from restraining trade. Indeed, rather than endowing producers with political currency to capture regulators, allowances for campaign contributions appear to have strengthened competition by discouraging regulatory takings and balancing monopsonistic pressures from consumer-voters. These results highlight an empirically important potential for regulations to favor consumers overly, and strengthen arguments against consumer surplus as an objective for competition policies.
* Associate Professor of Law and Economics, College of Law, Florida State University; Campbell National Fellow, Hoover Institution, Stanford University. E-mail: dino{at}chicagogsb.edu. Kurt Annen, Robert Crandall, Rob Fleck, Andy Hanssen, John Jackson, Roger Noll, J. Gregory Sidak, and Craig Stroup carefully considered previous versions of this and related research. Jonah Gelbach is especially remarkable in this regard. Gary Miller offered numerous comments on this research program more generally. I thank each of these individuals, as well as seminar participants at Montana State University's Conference on Collective Action, the University of Guelph (economics), Washington University's Conference on Empirical and Formal Models of Politics, the Western Economic Association's panels on Private and Public Governance, the Society for Political Methodology's Summer Methods Conference at Stanford University, the Southern Economic Association, NERA Economic Consultants (San Francisco), the Federal Reserve Bank of Kansas City, Tulane University (economics), the Midwest Political Science Association's panels on Economic Policy, and Florida State University (economics and political science) for helping me improve this research.