Lobby Groups and the Financial Support of Election Campaigns

We study a model of competition between two political parties with policy compromise. There is a special interest group with well-defined preferences on political issues. Voters are of two kinds: impressionable and knowledgeable. The impressionable voters are influenced by the election campaigns. The objective of the parties is to obtain the maximum votes. Parties compete for financial support from a given interest group. Each party proposes a platform in exchange for an amount of campaign funds, and the interest group decides whether to accept or reject each of these proposals. We show that parties' competition resembles, to a certain extent, Bertrand competition. Furthermore, in equilibrium only one party gets funds from the interest group. This result differs from the one obtained in a similar model by Grossman and Helpman in which, in equilibrium, both parties are financed by the interest group. This difference arises because Grossman and Helpman assume that it is the interest group who makes the proposals to the political parties.