Monday, November 21, 2011

What if the Episcopal Church were subject to antitrust law?

Ever since Adam Smith, economists have recognized the role that competition between religious sects plays in aligning the incentives of the clergy with the goals of a congregation: if a church does not deliver what its customers want, the customers can vote with their feet, and find a church that does.

There are, in general, two ways to to respond to this kind of competition: (i) by offering customers more of what they want or (ii) by harming competitors. The former is good for consumers while the latter is not, and the antitrust laws try to distinguish between these cases with what is called the "no business sense" test. If an action by a firm with market power harms competitors in a way that doesn't make any business sense but for its anticompetitive effect, then it may face prosecution.

I was reminded of this principle when I saw (WSJ link) the leader of the Episcopal church respond to congregations that want to affiliate with a rival Anglican sect, by saying that she'd rather have these properties become Baptist churches or even saloons than continue as sanctuaries for fellow Anglicans.

When the Church of the Good Shepherd in Binghamton, N.Y., left the Episcopal Church ..., the congregation offered to pay for the building in which it worshiped. In return the Episcopal Church sued to seize the building, then sold it for a fraction of the price to someone who turned it into a mosque.

I include this under the heading of "Managing vertical relationships" because the buildings are an "upstream" input into the production of Church services. The Episcopal Church is trying to raise the cost of rivals for accessing this input.

The success of the strategy depends on how much rival costs go up without access to these particular land parcels. Using this criterion, the chances of success seem small.

UPDATE: In response to the very good comments to the post, here is a brief commentary on the "no economic sense" test taken from the short-lived Section 2 Report (since renounced) that described how the Department of Justice would enforce this part of the antitrust laws.

The Department finds the no-economic-sense test useful, among other things, as a counseling device to focus businesspeople on the reasons for undertaking potentially exclusionary conduct. At the same time, the Department does not believe that a trivial benefit should protect conduct that is significantly harmful to consumers and the competitive process. Therefore, the Department does not believe that this test should serve as the general standard under section 2.

So even though it may have been the intent of the Episcopal church to monopolize, its ability to do so is unlikely.


  1. Luke,

    In numerous court decisions across the countries, most recently today in a Georgia Supreme Court decision, the ruling has been that The Episcopal Church is a hierarchical organization. Think Walmart.

    Nothing allows a local Walmart manager to walk away with the store, even if the local customers with it.

    The customers/believers are perfectly free to form another church, but they can't take the building with them. It isn't theirs.

    Further, why should The Episcopal Church be forced to sell to them? That would be like forcing Apple to buy American.

    What cost is The Episcopal Church raising? Those who have left the building are perfectly free to purchase in the competitive market. There's nothing special about the building.

    The "rivals" raise their own costs by leaving The Episcopal Church. The reason is they are no longer part of the world-wide Anglican Communion -- that organization assigns exclusive territories to its franchises. Again, why not?

  2. good questions all. But isn't this a question of stewardship? Why give away a church at a "fraction" of its value? I suspect that the money could be better spent elsewhere.

  3. John's comments also illustrate how difficult it would be for this "exclusion" strategy to succeed.

  4. Luke, I concur that we've seen a thin markets effect in some of these cases where the Episcopal Church has excluded the purchaser with the highest willingness to pay. Yes, this creates an arbitrage opportunity although I'm not aware of any cases where that has occurred. But that may explain why in more recent cases where the denomination chooses to sell we've seen it ready to negotiate over the price with the dissidents.

    But, again, it's clear who owns the property. Denominations are free to organize as hierarchies or not. Dioceses can opt in -- that's how the Episcopal Church was created. But they cannot opt out, nor can individual parishes. I hope folks understand that this is not a contradiction to freedom of religion. What would be a contradiction to freedom of religion would be for the state to tell a church it cannot organize as it wishes.

  5. I concur. The posting was designed to highlight the "no business sense" test. And I modified it after reading your comments about the difficulty of raising the cost of real estate.

    NEW QUESTION: do you ever worry that the organization of the Episcopal/Anglican Churches lacks any of the usual checks and balances, like a board of directors/governors to oversee the Bishop? Would you predict self interested behavior by the Bishops?

  6. The Holy Spirit can intervene at any time.

  7. It's a church and is supposed to be above such petty, vindictive actions. No wonder their membership is collapsing. It would be interesting for someone to do a study and look for the effect of these hardball tactics on aggregate contributions. These organizations are all voluntary in nature and members can punish the leadership by reducing contributions.

  8. Building on one of John's comments, to harm consumers through exclusion, the Episcopal Church has to acquire and exercise market power over an input its rivals need. I've been to Binghamton, NY, and real estate is hardly a scarce resource that the Episcopal Church has monopolized. There's plenty of abandoned factories that could be fixed up.

    This also illustrates why the "no business sense" test makes no economic sense in exclusion cases. The harm from exclusion comes about by creating market power over an input. Whether or not that was profitable for someone to do is just about irrelevant. As I've said elsewhere, it's like homicide detective standing over the dead body and arguing about how much the perpetrator paid for the gun.

  9. I wonder if the formation of newer congregational based denominations in 19th century US a response to these practices? These denominations were set up so that the congregation owns the property and joins a confederation of like-minded congregations. These congregational-based denominations do run into issues when the national headquarters invests in starting a new congregation in an under-served area only to see the newly formed church affiliate with another denomination. I suppose your feelings toward this possibility depend on how ecumenical you are.