Product Market Competition and Lobbying Coordination in the U.S. Mobile Telecommunications Industry

Abstract

This paper empirically investigates market behavior and firms' lobbying in a unified structural setup. In a sequential game, where firms lobby for regulation before they compete in the product market, we derive a testable measure of lobbying coordination. Applying the setting to the early U.S. cellular services industry, we find that lobbying expenditures, as measured by campaign contributions, and market conduct were consistent with a one-shot Nash equilibrium and that price caps were binding on average. Furthermore, campaign contributions from cellular firms effectively lowered the burden of the price caps and reduced production costs.

Keywords: Collusion, lobbying, price cap, regulation, rent-seeking, interest groups, telecommunication

JEL Classification: D72, L13, L51, L96, C31