Market Concentration and Lobbying Expenditures

Abstract: The collective action literature predicts that less-concentrated industries spend less than more concentrated industries on lobbying activities. This paper presents a robust empirical fact that is at odds with this core result. To explain this fact, I include a neglected but, arguably, important dimension in the analysis: the level of excludability of the goods being lobbied. I present examples of excludable US political goals and, using new measures of excludability at the industry level, I show that less-concentrated industries tend to lobby more heavily for excludable goods. The central point is that neglecting the fact that different industries can lobby for goals that differ by their level of excludability can bias the estimates that link market concentration and group efforts. Then, I show that once one controls for the level of excludability in the industry-level lobbying goals, the standard collective action prediction is reestablished. I end this chapter by using national-level mergers as an exogenous source of changes in city market concentration. I show that, controlling for the level of excludability of their advocacy goals, firms that faced these shocks increased their lobbying expenditures disproportionately, providing validity to Olson's seminal prediction.