Market Conduct and Endogenous Lobbying: Evidence from the U.S. Mobile Telecommunications Industry

Abstract

This paper empirically explores the relationship between firms' market behavior and their lobbying activities in a regulated market. In particular, we investigate whether the amount of contributions offered by cellular service providers to fund the campaigns of political parties affected market conduct in the early US mobile telecommunications industry. We structurally estimate market interactions while taking the potential endogeneity of lobbying decisions into account. Our results show that competition was more intense in those states where campaign contributions by the cellular industry have been higher. Furthermore, we reject the hypothesis that lobbying activities can be regarded as exogenous in the study of market conduct.