Protection at Stake

When it comes to trade policy, there is a frequent inherent conflict between domestic producers and domestic consumers. Increased imports cause a downward pressure on domestic prices and, hence, improve domestic consumer welfare while diluting domestic producer profits. Here the implications of an import quota in an oligopolistic market à la Cournot are examined. In a lobbying contest between the two interest groups, consumers and producers, their relative political contributions determine the probabilities of the policy-maker choosing their respective bliss points: free trade or autarky. We find that as the number of foreign competitors in the domestic market increases, the policymaker receives more contributions and the probability of winning shifts in favor of domestic consumers.