The Korean Economic Review
Protection at Stake
Hans Haller (Virginia Polytechnic Institute and State University) and Richard Milam (CommScope Corporation)Year 2010Vol. 26No. 2
When it comes to trade policy, there is a frequent inherent conflictbetween domestic producers and domestic consumers. Increased importscause a downward pressure on domestic prices and, hence, improvedomestic consumer welfare while diluting domestic producer profits. Herethe implications of an import quota in an oligopolistic market à la Cournotare examined. In a lobbying contest between the two interest groups,consumers and producers, their relative political contributions determine theprobabilities of the policy-maker choosing their respective bliss points: freetrade or autarky. We find that as the number of foreign competitors in thedomestic market increases, the policymaker receives more contributions andthe probability of winning shifts in favor of domestic consumers.JEL Classification: C72, D43, F12, F13, L13Keywords: Cournot Oligopoly, Foreign Competition, Consumer Surplus,Producer Surplus, Trade Policy, Contest