Empire-Building and Price Competition

Abstract : While economic historians have stressed the importance of price competition in the protection market, theorists of conflictual activity have argued against the extrapolation of this form of competition in the protection market and favored competition through the quantity of conflictual effort. We purport to show 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, namely early empires of domination, territorial empires and merchant empires. Empires are structured on the basis of two types of hierarchies: "top-down" and "bottom-up" that determine their protection costs. 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.