Seminario 17/13: Miguel González Maestre (U. Murcia) – Populist Traps under Democratic Competition Policy

Información

Abstract

In a two-sector economy, we consider the endogenous determination of the level of competition in the imperfectly competitive sector, under democratic, non-manipulated voting. In the context of the Salop’s (1979) circular model, we identify conditions such that besides a competitive equilibrium (with most voters choosing the efficient level of transport cost), a «populist» equilibrium trap appears in which a majority of fully rational and informed citizens vote for an inefficiently high transport cost. In particular, we show that, under reasonable conditions, a «populist» coalition of middle-class entrepreneurs (which vote for a high transport cost) defeats a «coalition of extremes» formed by high and low productive entrepreneurs and pure consumers (which vote for low transport cost).