Market Power in Pre-modern Prague: Club Goods and Rent-seeking

Abstract

Medieval and early modern craft guilds were rent-seeking coalitions of local producers that controlled markets at the expense of society as well as market-enhancing organizations that reduced the high transaction costs associated with pre-modern industries. This article presents an economic analysis of this seemingly contradicting behavior. The proposed argument is simple. Obtaining a market privilege guaranteed guild members extra rents while increasing the cost of losing membership, which motivated greater collective action within the organization. The ability to punish free-riders and enforced cooperation was used to overcome the problems brought by the transition from kin to market economy.

David Dolejší, Ph.D.

Manager in Financial Risk Modeling

My expertise is in the area of banking and financial regulations with a particular focus on model risk management and model validation.