Lobbying Game in Industries

A firm's profit might depend on how to handle operational costs or expenses. For an improvement of profit, a firm attempts to lobby executives consistently. A lobby can allow a firm to acquire an excessive profit although a cost occurs additionally. That is, there exists a tradeoff between an excessive profit and a cost generating from lobbying executives. Not surprisingly, a firm would have rivalries in the industry and all of them share similar ideas. In industry, the lobbying activities can take the form of a simultaneous game. Furthermore, this simultaneous game should turn to be a dynamic game if a firm's profit is damaged as a result from detection. Different from previous literatures, this paper focuses on dynamic analysis so the main purpose of firms should be to maximize expected discounted total profit. We will show that a firm actually maximizes a level of lobby on the basis of expected discounted total profit, obtainable during the entire life of firm. Accordingly, a Nash equilibrium level of lobby and the expected discounted total profit are determined. In last, we can contribute to finding an implication about a proper level of penalty for committed lobbies and discuss how this penalty can prevent firms from attempting to lobby executives. This paper aims at helping a country to have a greater social welfare by reducing illegal lobbies.