Academic journal article Review of Social Economy

Product Variety in Religious Markets

Academic journal article Review of Social Economy

Product Variety in Religious Markets

Article excerpt


In ordinary markets, an increase in the variety of products results in an increase in total market sales, ceteris paribus. A number of researchers have begun analyzing the "religion" market treating churches or denominations as firms operating in ordinary markets. Does a greater variety of denominational choice in a religious market lead to larger total church membership? Are religious markets ordinary?

This paper suggests that religious markets are not ordinary markets. A consumer in a religion market faces significant costs if religions with incompatible doctrines are in the market. If the cost to a consumer of inconsistent doctrines exceeds the benefit of denominational variety, regions with greater denominational variety will have lower total church membership. As an important extension, consumers in some non-religious markets may also experience substantial costs of product variety. Not all markets are ordinary.

We first outline the standard economic model of product variety and its application to religious markets. The standard theory is a natural extension of Lancaster's (1975, 1979) analysis of product variety. The theory is plausible for religious markets. However, the empirical evidence from religious markets supporting the theory is not completely convincing.

In the subsequent section, we present an alternative view that more accurately describes the unique character of religious markets. This view emphasizes the role of uncertainty and commitment costs in selecting a religion. The fourth section examines data on the number of church adherents by U.S. county. We find that denominational concentration is positively associated with the total level of church membership. The final section summarizes results and suggests applications to other markets.


The role of product variety in markets was first comprehensively explored by Kelvin Lancaster (1975, 1979). In Lancaster's formulation, people have differing preferences for product characteristics within a product family or industry. Given some degree of economies of scale, a monopoly protected by entry restrictions produces a limited variety of products and limits total industry output. If entry is permitted, both product variety and total output in the industry increase. Removing restrictions on entry increases product variety as new firms enter the market. Since consumers have a greater choice of products at lower prices, total sales in the industry increase. The natural extension of Lancaster's work is the idea that as product variety in an industry increases, total market sales also increase, holding price and other factors constant.

That religion might be amenable to this sort of market analysis is not a new notion. A model of religious market structure first appears in Adam Smith's The Wealth of Nations (1979 [1776]). Smith treats churches as firms participating in a market for religion. As such, churches are motivated and challenged in the same way as ordinary firms. Smith contrasts an established church - a state-funded and protected monopoly - with disestablished competing churches supported by member donations. Because they survive on voluntary contributions, successful disestablished churches are compelled to behave in a way that is attractive to members. Smith then predicts disestablished competing churches will have greater total membership than an established church. Posner (1987) resurrects this argument and draws related conclusions. Recent research by Hamberg and Pettersen (1994) tests and confirms Smith's prediction using contemporary Swedish data. Stark and Iannaccone (1994) use European data to support the theory. Although they do not quite use Lancaster's theory, these researchers demonstrate clearly the value of economic analysis in explaining aspects of religious market conduct. In fact, a substantial body of work applies economic models to religious activity other than just market structure and conduct (for one survey, see Iannaccone and Hull 1991). …

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