Discuss how a politicians "policy differentiation" from his opponent in an election softens the competition over how much in political rents the politician will be able to collect.

Question

What will be an ideal response?

Answer 1

Politicians in electoral competition are a bit like firms in price competition: If they seek rents (as firms seek profits), they compete on how much to charge. Without product differentiation, the Bertrand model predicts zero profits for firms -- and similar logic suggests zero political rents or politicians in elections with two candidates. But with product differentiation, the Bertrand model predicts positive profits for price-competitors -- and the same logic implies that "policy differentiations" allows political rent seeking to survive electoral competition.