Protection at Stake

Hans Haller and Richard Milam
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Hans Haller: Virginia Polytechnic Institute and State University
Richard Milam: CommScope Corporation

Korean Economic Review, 2010, vol. 26, 267-286

Abstract: When it comes to trade policy, there is a frequent inherent conflict between domestic producers and domestic consumers. Increased imports cause a downward pressure on domestic prices and, hence, improve domestic consumer welfare while diluting domestic producer profits. Here the implications of an import quota in an oligopolistic market à la Cournot are examined. In a lobbying contest between the two interest groups, consumers and producers, their relative political contributions determine the probabilities of the policy-maker choosing their respective bliss points: free trade or autarky. We find that as the number of foreign competitors in the domestic market increases, the policymaker receives more contributions and the probability of winning shifts in favor of domestic consumers.

Keywords: Cournot Oligopoly; Foreign Competition; Consumer Surplus; Producer Surplus; Trade Policy; Contest (search for similar items in EconPapers)
JEL-codes: C72 D43 F12 F13 L13 (search for similar items in EconPapers)
Date: 2010
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