Price Discrimination and Protestant Entry

In contrast to the naive version of Weber's (demand-side) thesis, there are testable implications of the supply-side theory of Protestant entry. To underscore the testable economic implications of entry into the medieval religious market, recall our simple model from chapter 6. In figure 8.1 let AD represent the market demand for church services. MCc and MCp represent the marginal production cost of two religions, Catholicism and Protestantism, which, at least initially, are assumed equal to each other. The fact that the demand curve for religious services has a negative slope is unexceptionable. The cost function is related to the provision of inputs in the supply of religious services.

Assume that the medieval Roman Catholic Church practiced perfect price discrimination before Protestant entry. The entire area (ABC) under the demand curve prior to entry therefore represents potential consumers' surplus. Under these circumstances, the largest "donors" of consumer

Price of religious services

Price of religious services

Religious services

Figure 8.1

The market for religious services

Religious services

Figure 8.1

The market for religious services surplus were those consumers in the upper reaches of the demand curve. Note that with perfect price discrimination, all consumers are on the margin of defection.

Under favorable conditions, entry takes place. Assume that Protestants enter as single-price monopolists charging Pp and selling Qp of religious services, as shown in figure 8.2. Those demanders paying the largest amount of consumer surplus for religious services (those in the upper reaches of the demand curve) would tend to switch. This means that OQp demanders will likely switch from Catholicism to Protestantism, leaving BD as the residual demand curve for Catholicism.13 If the Catholic Church continues to price discriminate along the residual demand curve, the average price falls in response to entry. There would be no trades at prices AB for Catholic religious services after Protestant entry. If the Church opts for a simple monopoly price after entry, price would also fall for Catholic religious services.14

Let us assume that Protestant churches entered the religion market as rival monopoly-like firms charging a simple (but different) monopoly price. Their membership (entry) price was cheaper, but not free—a 10

Price of religious services

Price of religious services

Figure 8.2

Perfect price discrimination and Protestant entry

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