Entry: direct control or regulation?

We model a setting in which citizens form coalitions to seek preferential entry to a given market. The lower entry the higher firm profits and political contributions, but the lower social welfare. Politicians choose to either control entry directly and be illegally bribed, or regulate entry using a general rule and be legally lobbied. We show how direct control generates lower entry rates and grants politicians more bargaining power, as no interest group has a strategic advantage in the lobbying game. Using a rule namely creates a cutt-off creating a free riding advantage for citizens with characteristics favoured by the rule. By forming a separate interest group these 'strongest' citizens are able to reduce competition from other groups, which is impossible with direct political control. Despite generating lower rents, the illegality of bribes induces politicians to switch to regulation when political accountability is high. Countries with weak accountability are characterised by bribing and relatively low entry while countries with strong accountability exhibit lobbying and higher entry rates.