Competition Between Exclusive Religions: The Counter‐Reformation As Entry Deterrence
| DOI | http://doi.org/10.1111/sjpe.12045 |
| Published date | 01 July 2014 |
| Date | 01 July 2014 |
| Author | Mario Ferrero |
COMPETITION BETWEEN EXCLUSIVE
RELIGIONS: THE COUNTER-
REFORMATION AS ENTRY
DETERRENCE
Mario Ferrero*
ABSTRACT
This article sets forth a theory of competition between exclusive religions as an
entry deterrence game, in which the incumbent may find it profitable not to
accommodate but to deter the competitor’s entry by precommitting to sufficient
capacity expansion in the event of entry. If entry costs are high enough, deter-
rence is optimal and the incumbent remains a monopolist, although the entry
threat distorts its effort upward. The model is then applied to the Catholic
Church’s reaction to the Protestant Reformation. It is argued that the model
provides a better fit to the historical data of the Counter-Reformation than the
price-cutting model proposed by economists Ekelund, H
ebert and Tollison
(2004, 2006).
II
NTRODUCTION
This article addresses a major puzzle of religious history. At the end of the
religious wars sparked by the Protestant Reformation, the Peace of Westpha-
lia (1648) set the religious borders of Europe in stone. Yet the Catholic
Church continued the huge reform effort in its domains that had begun as a
reaction to the Reformation. Why bother? How to make sense of church
policies in early modern Europe? This historical territory has already been
visited by economists. Relying on a public choice approach that views the
church as a rent-maximizing monopoly, Ekelund et al. (2002, 2004, 2006)
offer an economic interpretation of the Counter-Reformation as price cut-
ting: as an incumbent firm fighting to protect its dominant position in the
face of a competitive challenge, the church lowered the price of its services
to counter Protestant entry; in turn, this price is taken to consist mainly of
the ‘price of salvation’. However, we will show that due to their limited
engagement with the historical data of the period, Ekelund et al.’s account is
a poor description of the impact and implications of the whole of Counter-
Reformation policies. In particular, once the full picture is brought in, we
*University of Eastern Piedmont
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12045, Vol. 61, No. 3, July 2014
©2014 Scottish Economic Society.
280
will see that the price of salvation was actually increased, not decreased. So
the puzzling fact that the church intensified its reform effort even as its dom-
inant position was politically secure, and the perplexing nature of this effort,
are still in need of rational explanation. This article sets forth an economic
theory of competition between exclusive religions and applies it to the solu-
tion of the puzzle.
We look in vain for such a theory in the extant literature on the econom-
ics of religion. Building on Iannaccone (1995), Ferrero (2013) develops a the-
ory of conversion to exclusive faiths that yields a model of the competition
between an exclusive religion and many non-exclusive providers of religious
services. There, exclusivity is viewed as a form of market signaling for supe-
rior quality that works to the benefit of the collective group as long as it
confronts a plurality of non-exclusive competitors, such as the Christian
Church vis-
a-vis the polytheistic cult system of the Roman Empire; but the
signaling effect of exclusivity breaks down when the group confronts another
exclusive group. Barros and Garoupa (2002) have a model of religious strict-
ness in which exclusive groups compete by choosing their location on a one-
dimensional, linear ideological space. However, our puzzles show absence of
entry. Ferrero (2008) shows that a similar model of competition on the doc-
trinal line can account for the hardening of doctrine and increasing theologi-
cal strictness that characterized the evolution of the early Christian church
up to and beyond the Constantinian age. However, that model assumes that
Judaism –a quintessentially exclusive religion –stayed fixed at the upper end
of the strictness line and so was not an active player, while the locational
contest was being played out by the mainline Church and a variety of Chris-
tian or quasi-Christian, typically non-exclusive, sects. So we need a fresh
start.
Ideally, a full-fledged model of competition between exclusive religions
would have to rationally account for exclusivity itself, i.e., the religion’s
request that brand loyalty by each individual customer be fully 100 percent –
a difficult task, as such a practice is rarely, if ever, observed in the world of
ordinary business firms. In this article, we only take one step in the direction
of such a model. We simply assume that a religion does require exclusive deal-
ings and look for one important way to enforce this requirement: shutting
potential competitors out of the market, so that religious mixing by customers
is effectively prevented.
1
Thus, we argue that specific events in religious history
–in our case, church policies in the Counter-Reformation era –can be identi-
fied as entry-deterring actions taken by the relevant actors, and turn to the
economist’s toolbox for a model that can account for our facts in broad out-
line. Given the extremely coarse, qualitative nature of any historical data of
this kind, the model is not ‘tested’ in the usual sense; rather, it serves the pur-
pose of making events far removed from the normal domain of economics
1
Alone in the literature, Raskovich (1996) offers an interesting model of the enforcement
of exclusive dealings in ancient Israel, based not on entry deterrence but on a combination
of divine curse and group boycott.
COUNTER-REFORMATION AS ENTRY DETERRENCE 281
Scottish Journal of Political Economy
©2014 Scottish Economic Society
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