Monday, September 16, 2013
Posted by D. Daniel Sokol
Antoine Pietri (ENS and University Paris 1, CES), Tarik Tazdait (CNRS, EHESS, CIRED) and Mehrdad Vahabi (University Paris 8, CES) discuss Empire‐building and Price competition.
ABSTRACT: This paper is among the first to theoretically examine the relevance of price competition in the protection market by focusing on the competition between empires. By distinguishing absolute and differential protection rents, we first define coercive rivalry and price competition among empires and then establish three types of empires: early empires of domination (like Akkadian empire), territorial empires (like Russian empire), and merchant empires (like Venetian empire). Empires are structured on the basis of two types of hierarchies that determine their protection costs: ‘top-down’ and ‘bottom-up.’ We systematically study the impact of asymmetrical protection costs on price competition in the light of Bertrand equilibria. We provide an economic rationale for the use of violence throughout history in conformity with the findings of economic historians.