The Effect of Industry Concentration on Free Riding

The conventional wisdom regarding industry concentration and cooperative behavior has not been fully supported by the empirical literature. This paper develops a game-theoretic model to explain these mixed results. In the context of an industry that lobbies the government for tariff protection, the model shows that the difficulty of enforcing a cooperative agreement is a function of not only the number of firms in the industry but also the rate of return to lobbying. Thus, when the rate of return to lobbying expenditures is high, the expected relationship may break down.