Endogenous Lobbying and Protection under Monopolistic Competition

Abstract

This paper studies the "Protection for Sale" model in the setting of monopolistic competition drawing on the quadratic sub-utility model. This model generates two new findings: (1) the average cross-price elasticity, in particular, only among foreign varieties in a sector negatively influences the level of protection; (2) the total number of domestic varieties over one of the foreign varieties in a sector, a new proxy for political power of domestic lobby groups in that sector, positively influences the level of protection.