Thursday, June 12, 2008
Posted by D. Daniel Sokol
Dino Falaschetti of Florida State Law School asks and answers, Can Lobbying Prevent Anticompetitive Outcomes? Evidence on Consumer Monopsony in Telecommunications.
ABSTRACT: When basic competition rules cannot preclude 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 these 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 overly favor consumers, and strengthen arguments against consumer surplus as an objective for competition policies.