The Counter Reformation Incumbent Firm Reaction to Market Entry

It is to be desired that those who assume the episcopal office know what are their duties, and understand that they have been called not for their own convenience, not for riches or luxury, but to labors and cares for the glory of God.

—The Canons and Decrees of the Council of Trent

[Church] Reform... usually meant tightening up the rules for collecting money. —Denys Hay, The Church in Italy in the Fifteenth Century

In chapter 5 we characterized the Protestant Reformation (1517-1555) as a form of market entry and showed that its success was a consequence of both demand-side and supply-side factors. As a dominant firm in its religious market, the Catholic Church was bound to respond to the market threat of rival entry. Historians refer to Catholicism's response as the "Counter-Reformation," or, alternatively, the "Catholic Reformation" (1555-1648).1 We find that the Roman Catholic Church responded to rival entry in a way predicted by economic theory. After Protestantism gained a foothold in the religious market, the Catholic Church faced a residual demand curve that was composed of demanders who were less responsive to price than those that broke away. Consequently, it (1) lowered the average price of providing the Z-good "religious services"; (2) engaged in vigorous competition in certain contiguous areas; (3) attempted to raise rivals' marginal costs to move demanders back to Catholicism; and (4) tried to boost demand in its "retail" market, while simultaneously protecting and even intensifying its rent-seeking practices in its "wholesale" market. (By "retail" we mean direct sales to church customers, whereas by "wholesale" we refer to the structure of internal transactions of the institutional church, such as dealings between bishops and lower clergy.) In the final analysis, the Roman Catholic Church responded to Protestant entry and to the encroaching Age of Reason with lower full prices, with violence, and with nominal, rather than fundamental, doctrinal alterations.

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