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Empire-building and Price Competition

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  • Pietri, Antoine
  • Tazdaït, Tarik
  • Vahabi, Mehrdad

Abstract

This paper examines the relevance of price competition in the protection market in order to explain the different modes of empire-building. Our approach unravels the economic rationale of merchant empires which is not explicable with existing theoretical frameworks systematically eluding price competition. Our main contribution is to introduce a distinction between two different types of rent, namely an ‘absolute’ and a ‘differential’ one. Absolute protection rent (AR) corresponds to rents extracted by sellers of protection (empires) using threats and coercion. In contrast, differential protection rent (DR) stands for economic advantages conferred on subjects of an empire. The choice of the territorial expansion rule (AR-maximizing or DR-maximizing) depends on the nature of the protection market which is influenced by the assets structure detaining by the buyers of protection. In this paper, we build a general framework consistent with historical evidence in which coercive rivalry appears to be one case of empire-building among others (including price competition).

Suggested Citation

  • Pietri, Antoine & Tazdaït, Tarik & Vahabi, Mehrdad, 2013. "Empire-building and Price Competition," MPRA Paper 63486, University Library of Munich, Germany, revised Sep 2014.
  • Handle: RePEc:pra:mprapa:63486
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    More about this item

    Keywords

    absolute and differential protection rents; sellers’ and buyers’ protection market; contest success function; coercive rivalry and price competition; merchant empire JEL classification: D74; H11; H56; P16;
    All these keywords.

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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