Lobbying as a Private Good with Intra-Industry Trade

Abstract

Intra-industry trade - trade in different varieties of the same product between countries with similar factor endowments - has been an important and surprising feature of the postwar international economy. Economists have explained this trade with models of monopolistic competition, which suggest that intra-industry trade does not have the stark distributional consequences that the more traditional "endowments-based" trade does. I do not dispute that claim here, although I do dispute a political implication drawn from it - that intra-industry trade produces less political action than endowments-based trade. I argue that, because firms involved in intra-industry trade are monopolists, lobbying essentially becomes a private good. If intra-industry trade places costs on firms, they do not have less incentive to take political action to stop it, as the conventional wisdom suggests. I provide evidence for this contention from complaints lodged with the International Trade Commission. The results show that the higher the degree of intra-industry trade the more likely an industry will request protection from the ITC.