Notes on Competition and Justum Pretium Theory and Practice in Medieval Italy

I. Introduction

In his De Oratore, Cicero outlined his conception of historia magistra vitae. ¹ Does history provide us with useful lessons on how to handle complex economic, legal, and political issues? More specifically, can we rely upon concepts and solutions we find in the history of business law to draw inspiration for potential solutions to problems we encounter in modern competition law or antitrust law? Keeping these questions in mind, this article proposes a few ideas on price theory and practice in medieval communal Italy and compares them to modern EU competition law and economics rules and scholarship. In doing so, it focuses on the gap between medieval canonic (or civil law) and merchant law theory and practice as developed in a very peculiar environment—the Italian Comune. ² The sources on the law, economics, and politics of the Italian Comune are often fragmented and difficult to retrieve. ³ Instead of conducting an in-depth analysis of those sources, the following pages focus on a few examples that provide insights on Italian medieval jurists’ thought. It compares medieval jurists’ thought with the attitudes of medieval merchants, artisans, and consumers toward price—as embedded in a complex institutional setting.

This analysis relies mostly upon secondhand historical sources. I did not carry out any direct analysis of ancient manuscripts, which would have required knowledge of medieval paleography. I have, however, read the medieval legislation in Latin, as extracted from original manuscripts and reported in transliteration in modern anthologies. The notes in this article are mainly based on the research of preeminent nineteenth-, twentieth-, and twenty-first-century American and European experts of Italian medieval history.

This article first describes the peculiar environment of the Italian medieval Comune. It then sketches a few meaningful traits of the fragmented theoretical and practical approach to fair-pricing theory and practice in that particular historical environment. Subsequently, it provides a few comments on certain aspects of the present state of the art of theory of price in EU competition law and economics. It draws some conclusions on potential analogies and differences between the modern EU and the medieval Comuni approach. It seeks to clarify whether there is any trait d’union between Italian Comuni medieval legal theory and practice and the modern EU competition law approach. Given that dynamic innovation is an important component of modern price theory, this article also sets out in detail some aspects of the modern and medieval innovation systems.

II. The Italian Comune: Its Kaleidoscopic Social, Legal, and Economic Environment and Its Institutions

Medieval Italy, in particular its Comune system, is often considered as the cradle of modern Western capitalist mentality ⁴ —although the Comune environment has different traits to the later protestant capitalism, which Max Weber describes in his Die protestantische Ethik und der Geist des Kapitalismus. ⁵ According to Goldthwaite, one of the main differences between Comune and protestant capitalism was the absence of commercial domination purposes in Comune industrial and trade strategy. ⁶ Originally, the Italian Comune was a creation of feudal society, through “the transfer of certain public rights from feudal lord to a group of vassals associated for the purpose.” ⁷ Nonetheless, the coexisting social forces rapidly transformed Comuni into something completely different from its original feudal nature. In Italian Comuni, artisans and merchants developed a flourishing economic system based on production and trade. ⁸ This microcosm of civilization differed to a large extent from the reality inherited from the Carolingian world, where clergy and feudal nobility were the dominant classes ⁹ and where peasants’ attempts to improve their social status were often repressed with spontaneous or institutionalized violence. ¹⁰

Despite the differences from the Carolingian world in terms of social mobility, for several centuries Comuni bourgeoisie continued to coexist with the old feudal families and with the clergy. For instance, despite the success of Genoese sea traders, the city of Genoa and its merchants continued being under the “tutelage of local lords.” ¹¹ Indeed, in some Comuni, such as Genoa, members of the feudal aristocracy were attracted by the incredible wealth accumulated by merchants. Therefore, they sporadically took part in trade ventures. ¹² The life of artisans and merchants was permeated by ethical principles that differed substantially from those inherited from the Carolingian world. Old aristocracy was not immune from the adoption of those values either. Profit became the driver of Comuni inhabitants’ daily activity—charity (often at the point of death) was the way merchants and bankers amended what was commonly perceived as a “sinful life,” one almost exclusively devoted to profit. ¹³ Artisans and merchants not only introduced a new way of looking at life; their activity and their frequent and complex commercial transactions required a completely new legal system, which was later known as lex mercatoria. ¹⁴

Often, contorted canonic or civil speculations were used to solve legal issues that typically arose within the former Carolingian feudal system. For instance, in precommunal Genoa, the main legal concern was real estate, as Van Doosselaere’s empirical research on eleventh-century Genoa city charters shows in detail. ¹⁵ Real estate mostly circulated through succession law, and the connected economic risk was limited to nature or warfare. “Slow law” was a good match for such a static economic reality. By contrast, the nature of artisanal production and trade—known as mercatura—and its focus on commodities and manufactured goods led to the need for a completely different set of rules. Those rules were applied by special bodies of arbitrators—consules mercatores—who were merchants themselves, and therefore experts in business matters. ¹⁶ In Comuni, for example in thirteenth-century Siena, these arbitrators often extended their competence way beyond commercial matters. This occurred not only because of their ability to solve commercial disputes, but also because the people of Siena distrusted judices (judges) and sapientes iuris (jurists). ¹⁷

Most merchants were of humble origins, as were the majority of the inhabitants of Comuni. Hence, they were often perceived as representatives of the interests of the common people, despite their success in accumulating wealth to the same degree as (if not more than) feudal families. Thanks to people’s support, several Siena consules mercatores (collectively named curia mercatorum) not only acted as arbitrators, but also obtained influential political positions in their Comune, positions that were originally exclusively reserved to the feudal aristocracy. ¹⁸ The complexity of the merchants’ political and jurisdictional roles in a Comune—where feudal families of ancient descent still had prominent positions—was exacerbated by the political divisions between the Guelphs (the supporters of the temporal power of the Church) and the Ghibellines (the supporters of the Emperor). ¹⁹

By contrast with Siena, in other cities, such as Bologna, the representation of a Comune’s lower social order was taken by doctores iuris, that is, university-educated lawyers and professors. They also claimed to represent the poorest of the population. In fact, with the progressive opening of university studies to people from lower social backgrounds, some of these doctores iuris could also claim to have humble origins. ²⁰ Genoa, Siena, and Bologna show that the educational and practical background of those to whom legal and political matters were deferred could be different in each Comune. The participation of merchants and professors—with diversity in their educational backgrounds—in political bodies is meaningful when we consider the problem of fair pricing from a theoretical and practical perspective. For instance, a Bologna professor would have been more significantly exposed to legal theory than a merchant. Nonetheless, there is a common variable that can be noted in the history of these three cities: the necessity of the city administration to show, with a degree of credibility, that they would be able to represent the interests of the poorer sections of the population—at least in principle. Why was that the case?

In medieval Italy, fair pricing was not exclusively a theological matter, but often a very practical one, with strong political implications. The inability of a community to satisfy everyone’s primary needs could easily lead to riots. A well-developed sensitivity to the behavioral variable of fair pricing may have been a particularly important asset for medieval rulers, and their social and cultural background—the proximity to common people—may have helped shape wise as well as socially acceptable pricing policies. Finally, it is worth remembering that within the same city, the incapability of the administration to represent its citizens could easily lead to protests, subsequent changes in political representation, and acquisition of new political rights by commoners. An example of change in civic representation is the riot promoted by the merchant Giuseppe Toschi in Bologna in 1228. This riot eventually led to a stronger representation of merchants in the civic administration. ²¹ Hence, we can well understand that the Comuni political world was not only extremely differentiated, but also open to constant social and political change.

III. Notes on Contemporary Literature about Competition and Price Theory in Middle Ages Italy

Although the influence of theology on price theory was undoubtedly strong in the Middle Ages, recent literature has revisited certain preconceptions. ²² Legal theories often stem from the need to solve practical problems. Theories also tend to be a product of external circumstances. ²³ The Comuni economic environment must have been perceived as a sort of economic miracle during the times it flourished. From an economic perspective, its antecedent, the Carolingian world, was rather static compared to the Comuni one. It was mainly based on agriculture. Barter had an important role in the exchange of primary goods in a system where manufacturing was centered in monasteries. Monasteries often extended their temporal power over the nearby land and over agricultural businesses through small trade. ²⁴ In such a static world, the main concerns with fair price arose in relation to the so-called transeuntes. Those referred in Carolingian legal sources as transeuntes were foreign travelers who were not part of the local barter network. Transeuntes’ need to satisfy their primary needs and their lack of local connections could have made them easy prey for the local inhabitants looking for occasional profits. ²⁵ Hence, a Carolingian rule prevented sellers from charging transeuntes higher prices than those paid by the locals. ²⁶ Another Carolingian rule prevented consumers from engaging in the reverse behavior, that is, buying at a price lower than the digno pretio (“decent price”). ²⁷ This rule clearly addressed the situation where the seller had no market power at all, which again shows the limited development of markets on both the consumption and production sides.

If the economically static Carolingian world did not provide much food for thought to jurists and theologians engaged in price theory, the colorful Comuni reality would definitely present much more complex scenarios. Comuni inhabitants freed themselves from agricultural activity. Mobility and trade became widespread. The colorfulness of this new world was not only determined by the emerging merchant class—as Armando Sapori reminds us, almost every institution was permeated by the capitalistic mentality, monasteries and ecclesiastical institutions included. ²⁸ The Templars were a notable example of the intertwining of religious and secular interests. ²⁹ Hence, it is not surprising that great theologians, with the reputation of outward sanctity in their own belief system, were also influenced by their own daily experience of everyday Comuni life, which was permeated by trade and profit.

A look at traditional scholarship shows several formulas invented for the purpose of calculating a fair price for goods. These formulas are based on a rather conservative idea of distribution, where in each step of production or commercialization, workers are allowed to charge what is necessary to support themselves and their families, according to their social status. ³⁰ Raymond de Roover’s research is essential for an accurate understanding of the medieval scholastic thought on price. He says,

It is true that certain writers, Catholics and non-Catholics alike, have done their best to accredit this fairy tale and to propagate the notion that the just price, instead of being set by the allegedly blind and unconscionable forces of the market, was determined by criteria of fairness without regard to the elements of supply and demand or at least with the purpose of eliminating the evils of unrestrained competition. ³¹

Giacomo Todeschini offers another insightful angle on the way scholastic theory may have tried to reconcile theological positions with practice. He reports the words of Simone di Bisignano, who stresses the importance of a creditor intention in the case where their debtor pays back an additional sum along with the principal. What really matters seems to be whether the merchant let this happen because of their mundane passion for profits or for other reasons. ³⁵ As Todeschini notices, in such an approach, focus on intentions may have helped provide ordinary business practice with a formal (interior and not easily verifiable) religious justification—hence legitimating such practices even when they went substantially against religious prescriptions. ³⁶ In addition to camouflaging mundane behavior behind a religious façade, scholastic thought of the time may have already contained some of the ideas later developed by Adam Smith, which are the basis of nowadays theory of competition. Nonetheless, there is a latent contradiction in medieval thought on price, which manifests in the intellectual struggle to reconcile costs analysis with market mechanisms. ³⁷ As I stress in the following sections, medieval Comuni practice is a manifestation of such struggle, along with a state intervention directed to multiple policy purposes.

IV. Medieval Comuni Pricing Strategies—From Theory to Practice

Leaving the empyrean, built upon medieval theologians’ abstract speculations, and stepping into Italian medieval Comuni reality, we inevitably meet the beautiful aesthetics of those city-states, which rivaled with the artistic achievement of the classical Greeks and Romans. ³⁸ The considerable number of architectural and artistic creations of Italian Comuni are a testimony to their former wealth. ³⁹ At its economic apex, communal Italy was incomparably wealthier than almost any other European economic area. Avner Grief estimated the assets of only one Florentine family-held firm, the Compagnia de’ Bardi, at about four and a half times the English king’s net income one century later. ⁴⁰ Such wealth was produced by both merchants and artisans, who were organized in guilds, ⁴¹ associations founded as a reaction to the lack of social structures after the progressive decay of Carolingian institutions. ⁴²

It would be difficult to assess the competitive setting of the medieval Comuni reality without focusing on both merchants and artisans. As to artisans, part of the literature on guilds reports a series of provisions regulating their activity that at first glance look to be largely anticompetitive. ⁴³ The provisions include price fixing, ⁴⁴ market sharing (by fixing maximum quantity sellable in a given timeframe), ⁴⁵ and the prohibition to use distributors (downstream market foreclosure). ⁴⁶ There were also many rules intended to standardize products that nowadays might be considered as restrictive of free trade in the EU system. ⁴⁷ Through an in-depth analysis of guilds’ provisions, authoritative literature has concluded that medieval Comuni market guilds were rent seeking, hence inefficient institutions. ⁴⁸ This has equally authoritative opponents. ⁴⁹

On the basis of an analysis of each guild regulation, it is hard to ascertain who is right in relation to the effects of the existence of guilds on the medieval Italian economy. First, as to tariffs, it is worth remembering that guild tariffs usually tended to apply to goods of primary consumption and be in form of maximum prices. These provisions were subject to special attention in times of famine. ⁵⁰ Hence, they were inspired by the idea of containing excessive price for reasons of public order and not setting supracompetitive prices. Other forms of tariffs—not inspired by the same logic—were common for liberal professions, such as notaries. ⁵¹ Tariffs remained a leitmotiv of the European organization of legal professions until recently—and to a limited extent still are. ⁵² Early-twentieth-century Italian historians believed that most Italian guild regulations were adopted for consumer protection objectives. ⁵³ Rachel Kranton also revisited this idea through a sophisticated economic analysis of the guild system in which she shows the product-quality-enhancing function of guilds. ⁵⁴ Greif, Milgrom, and Weingast have provided a completely different reading of the efficiency-enhancing role of guilds. They have developed a game theory model to explain how the main function of guilds may have been the protection of property rights in an uncertain international bargaining setting, where uncertainty derived both from governments and from other merchants. Guilds may have greatly helped the development of international trade. ⁵⁵

As we have seen, the effects of the presence of guilds in medieval Italy are at least controversial. Hence, it is hard to see whether they produced any competitive harm at all. A wider look for information concerning prices may help us acquire a clearer idea of the state of competition in medieval Italian Comuni. This will also shed some light on the relationship between medieval theory, outlined in the previous section, and medieval practice. To do so, we can focus on two different categories of good—primary goods and luxury goods—where the latter were the most common object of international trade. These two examples will help us understand the diversified political rationales underlying price policies in medieval Italian Comuni.

Starting with primary goods, such as wheat or bread, we first have to consider the notable differences between the past and present. Despite the immense public wealth of medieval Comuni, we should not think that such wealth was widespread in private households. Berkley professor Carlo Maria Cipolla reminds us that “from the XI to the XIV [centuries], Italy was one of the most populated areas of Europe together with France.” ⁵⁶ The wealthiest part of the population of the Italian peninsula was located in its cities. Despite being in cities, even the wealthiest inhabitants paid considerable amounts on food: “also for urban population some tentative estimations say [they] would spend 60 percent to 80 percent of their income in food.” ⁵⁷ It goes without saying that what the common consumer bought was mostly groceries—whereas nowadays food accounts only for 29.1% of the average Italian household basket of goods! ⁵⁸

Resource scarcity is a basic theoretical concept for economic sciences. ⁵⁹ Common Italian medieval Comuni men and women may have experienced real scarcity, generation after generation. Concern about the scarcity of food may have been a constant trait of their mindset—and of their daily language. ⁶⁰ Frequent famines, along with limited transport technology, may have lead the medieval individual to regard prices for basic food, such as bread, as a matter of life or death, before seeing them as an issue of distributional justice. ⁶¹ The situation within Comuni walls was exacerbated in this respect by the fact that those who lived in the cities could not take food directly from land, unlike those who lived in the countryside. ⁶² In this light, and for this kind of primary goods, medieval legal theory on fair price proved its practical utility as a ready-to-use policy device. Nonetheless, in case of emergencies, such as famines, politicians and policymakers—constantly in touch with the deepest human instinct of survival—may have developed very practical political skills, not necessarily anchored in the theological theory of the time. As a matter of fact, legislation on bread pricing referred explicitly to the objective of maintaining public order, hence acknowledging the political relevance of containing prices. ⁶³ But what happened in ordinary settings, when wheat and bread were not lacking?

In an interesting essay on the price of wheat and bread, Alberto Cova shows that the practical approach to price theory in medieval Italian cities was on the one hand based on the legal theory of the time and, on the other, it was also highly pragmatic. ⁶⁴ The final price of bread was usually calculated by adding to the cost of wheat the cost of bread making at the different levels of production, while trying to keep the prices as low as possible. ⁶⁵ Nonetheless, there were difficulties in such calculations. First, in cities such as Pavia and Milan, there was a real market for wheat. By contrast, in Bologna, salaries were mostly paid in wheat and not in currency. Hence, in Bologna, the price of wheat was not subject to common product market mechanisms. Instead, it was the main component of an artisan’s salary. ⁶⁶ Even in Comuni where it was possible to determine the market price of wheat—such as in Milan or Pavia—the process may have been subject to a degree of unpredictability. Where a wheat market did not exist, the price may have been imposed by the few oligopolistic producers—the wealthy landowners who were usually feudal families—who still retained a strong political influence on the local government and who had no interest in engaging in distributive policies in favor of salaried workers. Where a wheat market existed, the process for determining a market price was rather complex. For instance, in Pavia, it involved selecting the five highest-price contracts, excluding the highest and the lowest, and then calculating an average based on the other three. ⁶⁷ Despite the apparent clarity of such formula, it is unclear how the rest of the process for fixing the price of bread could work efficiently. The cost of the bread-making process was calculated taking into account salaries, which were not subject to market mechanisms. For bread-makers, it is probable that decisions on salaries were taken by their own guilds—again on the basis of political/distributional criteria. ⁶⁸ Such political influence on the procedure for calculating the price for bread led Luca Clerici to suggest that price was set as a result of civic bargaining among public authorities, landowners, merchants, and guilds. ⁶⁹

Another interesting example of the formulas adopted for calculating the fair price of goods of common consumption is the one provided by the 1342 Perugia legislation pertaining to wine. ⁷⁰ Public officers were supposed to ask where the merchant had bought their wine and at what price. In principle, such enquiry had the function of controlling a merchant’s profit, which had to be fair. Franchini hypothesizes the importance of transport costs in the comparison, which could be taken into account in order to calculate the final “fair price.” ⁷¹ Nonetheless, Perugia legislation also shows us that comparing prices applied to the same good in different regions was already considered by the medieval legislator as a proxy for fair pricing—as it is nowadays in EU DG-Comp decisions such as Deutsche Post ⁷² —although today the civic bargaining element cannot be easily found in European excessive pricing rationale. Similarly, the formula may have also failed to catch real production costs, especially because the distributional policy was not carried out through modern fiscal mechanisms. Hence, the cost component of the price charged by workers had to be adjusted to meet their political demand for a fair share in the collective welfare, which had little to do with efficiency. It was, however, an expectable outcome, given that the whole system tended to mingle efficiency and distributional concerns.

Vittorio Franchini reminds us that Comuni administrations controlled the prices of three categories of goods or services: first, the goods necessary for the satisfaction of primary needs, such as bread (the so-called annona); second, public services; third, salaries (normally artisans’ salaries). ⁷³ These three categories each corresponded to completely different political interests. Prices of goods necessary for the satisfaction of primary needs aimed to make those goods available to every citizen in times of great scarcity as well as in good economic times. This in turn would lead to greater social peace. However, Franchini reports that in Comuni that were also important trade harbors, the price for primary goods was not subject to public scrutiny. Important trade harbors could rely upon imports of basic commodities in times of famine. ⁷⁴ This divergence in policies may mean that price control had to do with very practical concerns more that with matters of divine justice. An example of mechanisms provided for controlling the price of primary goods is the statutes of the Ravenna Comune. Ravenna had prospered in Byzantine times, but was no longer a trade hub in medieval times. ⁷⁵ In Ravenna, prices exceeding a certain threshold triggered an export ban and were brought down under a given price cap. ⁷⁶ It is clear how emphasis was on securing scarce resources, rather than promoting exchanges or protecting consumers from exploitation.

Luxury goods were not likely to be consumed by salaried workers on a regular basis. The luxury goods market was a parallel market for the few lucky ones, the members of the aristocracy, the clergy, and, increasingly, rich merchants. A general caveat when dealing with luxury goods is that, unlike nowadays, the statistical information available at the time was limited. On one hand, luxury goods transactions may have been fewer than today. On the other hand, they may have been well recorded because of their commercial relevance. Empirical data on wheat are relatively frequent in public records, because of their political importance. ⁷⁷ For luxury goods, the source is mostly private—that is, merchants’ records. ⁷⁸ Some of the luxury goods (or goods employed for manufacturing luxury products) that appear in merchants’ records of the time were woolen textiles, saffron, dyers’ woad, and alum. ⁷⁹ These goods also formed the core of medieval international trade. Some luxury goods, such as woolen or silk textiles, were often produced within Italian city walls by artisans. They were then traded by merchants for other luxury goods produced abroad, thereby gaining the merchants a high profit.

If we consider the production side of luxury goods manufactured within a typical Italian medieval Comune, we soon realize that harsh antimonopoly laws were implemented consistently within each legal subsystem in the complex medieval legal system. Merchant law and civil law confirmed the canonic prohibition against private monopoly against consumers in almost every important Italian Comune. ⁸⁰ Any agreement to artificially raise prices against the consumer was heavily sanctioned. In Florence, magistrates were allowed to revert to torture to fight against such practices. ⁸¹ Paradoxically, enforcement against such practices might have been even harsher in case of manufactured goods than in the case of basic commodities. In fact, as to wheat, Goldthwaite still reports that the possibility that speculations could take place. ⁸²

In order to fully understand the pricing policies for manufactured goods, and also why transgressions were punished so harshly, it is necessary to consider the relationships between merchants and artisans. It is reported that common policies followed by Comuni’s administrations tended to follow merchants’ interests when it came to fixing artisans’ salaries. The protection of merchants’ interests is a leitmotiv in medieval Comuni law. It is a manifestation of a remarkable imbalance in bargaining power between merchants and artisans. ⁸³ The degree of imbalance varied from Comune to Comune as each Comune had a peculiar composition in economic terms. ⁸⁴ The description of that imbalance is crucial to an understanding of the communal industrial organization, which was remarkably different from industrial organization as we know it nowadays in developed economies. In turn, it is essential to understand the industrial organization of the time to be able to grasp medieval competition mechanisms. Competition often emerged as a consequence of a power struggle between merchants and artisans, which pushed down artisans’ marginal profits.

Roberto Lopez provides an extremely interesting account of how merchants’ power could erode artisans’ marginal profits, thereby rendering production of certain manufactured good extremely competitive. ⁸⁵ Two important Comuni, which were also Repubbliche Marinare (Sea Republics) and great economic and military rivals in the Middle Ages, were Genoa and Pisa. ⁸⁶ Genoa had a superior fleet—merchants were prevalent in number and prominence within the city, and the geographical asperity of the Liguria territory played a part. Both cities were active in the production of woolen textiles and the artisans in this field were known as lanaioli. Whereas Pisa’s lanaioli successfully lobbied for protectionist measures from the city government, Genoa lanaioli, who were poorer and less politically influential, failed to do so. ⁸⁷ Genoa merchants’ success in extracting value from their artisan cocitizens propelled Genoese international trade and made of this city-state one of the most powerful economic players of the time.

Besides the international economic implications of Genoa’s expansion through trade, its international trade also had remarkable effects on the competition within the Genoese internal market. Genoese merchants traded at the Champagne fair (la fiera di Sciampagna) with French and English merchants. In Italy, they traded with Lombard merchants. High-quality woolen textiles imported from France (Montpellier and Saint-Gilles) and England—both named quite confusingly franceschi—competed with Genoa’s textiles at the high-end of the market. ⁸⁸ Woolen textiles produced in Lombardy were less precious but extremely cheap and competed with Genoa’s lower-quality woolen textiles. ⁸⁹ Genoa’s international trade kept the prices of woolen textiles low in Genoa city, a consequence of what we understand as a true global competitive process in modern times. ⁹⁰

There is a further important point to make in relation to the Genoese experience. Pisa artisans’ behavior very closely resembles ordinary lobbying activities by producers on governments. Starting from the sixteenth century, protecting internal industry was also a typical mercantilist strategy. ⁹¹ We know that it still is, especially in certain EU Member States. Nonetheless, EU law, along with free trade law, has adopted a rather strong state action doctrine, which, unlike in the United States, ⁹² has mostly been employed to fight against price fixing that is backed by a state’s legislation. ⁹³ Genoa medieval experience shows us that it was possible to make an economy prosper by reverting almost exclusively to trade and without protecting internal industry. On an international scale, there was no need for a state action doctrine, at least for certain goods; nor would that have been possible. In fact, although the legal status of Comuni was uncertain at the international level, some could be considered as politically independent both from the emperor and the pope by the end of the eleventh century. ⁹⁴ Therefore, there would have been no central authority capable of controlling the activity of each Comune, unlike what the EU is able to do with its Member States.

If Genoa adopted a very liberal stance toward trade, another important Repubblica Marinara, Venice, implemented trade legislation in order to take advantage of both free trade and protectionism—but this time at the expense of Venetian low-end consumers. A fourteenth-century Venetian legislation prohibited the retail sale in Venice of woolen textiles produced abroad, except for the franceschi textiles (meaning French, but a synonym for “luxury” at the time). ⁹⁵ Nonetheless, the same legislation authorized the sale in bulk of any woolen textiles. In fact, bulks of woolen textiles could not be cut. Hence, they were destined for foreign trade, and they formed the object of Venetian international trade in the Mediterranean.

V. An Ever-Changing Universe: Technology, Symbolism, Superstition, Gender, and Price in the Medieval Comune

The previous sections told about the coexistence in Italian Comuni of the commoner’s struggle for daily life and the merchants’ greed and profit fixation. They did not deal with some important aspects of the medieval Italian Comuni world, including technology, superstition, symbolism, and gender as related to prices. Technological and behavioral economics (the latter connected to superstition, symbolism, and gender) are two important angles for the understanding of competition price policy. A few comments on technology, superstition, and gender in the Middle Ages may help us understand further aspects of the analogies and differences between Italian medieval and modern attitudes toward price and competition.

Starting with technological innovation, studies on medieval Comuni guilds report the existence of regulations for the protection of certain forms of intellectual property (IP) that present some analogies with present-day trademarks. ⁹⁶ Nonetheless, there were no patents or any other system with a similar protective function in the Italian medieval Comuni. Stephan Epstein explains that the main way for the dispersion of innovation was through books (perhaps nowadays, we could add e-books), patents, and the migration of trained workers. ⁹⁷ A patent system was not invented before the late fifteenth century, and it first appeared in Venice. It was then imported to Germany and France. However, even in postmedieval times, most of the inventions were not patented. ⁹⁸ Epstein also notes that, at the time, books were not a particularly reliable source for innovation dispersion, because “written manuals were incomplete and at times misleading.” ⁹⁹ Hence, the only successful channel for technology circulation and dispersal was skilled individuals, by way of intergenerational transmission and peer-to-peer transmission. Benevolence could lead to training being offered to relatives. Nonetheless, a mechanism was needed that gave chances to partake in the production of high-quality goods and services, chances that extended to deserving non-family members—often from poor backgrounds—who could neither afford to pay for their training nor obtained training through family benevolence. Guilds played a crucial role in the protection and administration of IP through peer-to-peer transmission of knowledge. Apprentices were subsidized for the time necessary for their training in exchange for a below-market-wage employment contract once the training concluded. ¹⁰⁰

There are two important points to make with reference to the medieval Comuni technological innovation system. First, guilds did not encourage innovation. Once a technology was imported from elsewhere, guilds tended to protect their secrets and discourage or prohibit any innovative effort. Guilds’ prestige was based on the preservation of tradition. ¹⁰¹ According to Epstein, the attachment to tradition is the reason why innovation tended to occur where skilled workers relocated, out of the control of guilds—that is, usually to a foreign country. For instance, workers from Italian Comuni moved to the Rhineland and south Netherlands, and only once there did they produce new technology. ¹⁰² Second, in the public sphere, efforts were made to achieve technology dispersion, which may have led to the training of skilled workers and perhaps to some degree of incremental innovation. Nonetheless, quite surprisingly, artisans did not carry the burden of such efforts. This is in stark contrast with today when the innovation burden is also carried by entrepreneurs. Merchants did not carry the financial burden in medieval times. At times, the development of artisans’ activity and technological innovation was subsidized by the Comune itself. For example, in 1230, the Bologna Comune di Bologna invested a significant sum, in the form of a nonrepayable grant, for the purpose of developing textile manufacturing. ¹⁰³ The externalization of the burden of technological innovation and dispersion to the public sphere leads us to understand that the arguments in support of excessive pricing proposed by contemporary competition economists did not apply in the medieval Italian Comune. ¹⁰⁴ In fact, in most cases, legalizing excessive pricing for the purpose of furthering technological innovation may have had no positive effect, as claimed in modern competition economics theory. ¹⁰⁵ Given the power of merchants over artisans—the industrialist of those times—such a policy may have benefited merchants exclusively, especially given their ability to squeeze artisans’ marginal profits.

If the introduction of technical inventions was an economic miracle within medieval Comuni, did such a shift in paradigms occur also in the mind of the ordinary consumer? Was the behavior of the medieval Italian Comuni consumer to any extent similar to today’s consumers? It would be ambitious and misleading, to say nothing of impossible, to try to read the minds of those who passed away so long ago. Nonetheless, it is possible to propose some tentative thoughts on such fascinating questions. First, we have to remember that now behavioral theories are increasingly relevant for competition policymakers. Neoclassical economics was based on the assumption of a homo economicus, a rational actor, a concept that is incapable of describing consumers’ decisional mechanisms to a full extent. ¹⁰⁶ For instance, today we know that, on one hand, consumers are unsophisticated and, on the other hand, they are not necessarily only self-interested as they are capable of altruistic decisions and also expect altruistic behaviors by firms. ¹⁰⁷ We can barely imagine how famine and the desperate need for food may have negatively affected altruism. By contrast, religious values, widespread in the majority of the population of medieval Italy, may have positively influenced the same altruistic attitudes—at least for the necessity of the medieval citizen to be accepted within a rather homogenous society—because nonacceptance may have meant damnation, and not only in the afterlife. ¹⁰⁸ Fewer available goods may have even created more price awareness, and price awareness seems to be an interesting line of research for behavioral economics. ¹⁰⁹

Modern behavioral economics stresses the importance of the final figure in a monetary sum in shaping consumer preference for a given price. For instance, if the price ends with a “9,” consumers are likely to buy more. ¹¹⁰ One can imagine how numbers may have affected, perhaps even in a far more complex way, a medieval mind that was permeated by a complex symbolism deriving from astrology and religion. ¹¹¹ Dante Alighieri’s La Divina Commedia is a fine testimony on this point. ¹¹² If the medieval Comuni citizen were embedded in a far richer system of symbols than today’s consumer, it is also true that the medieval age witnessed the progressive dispelling of the superstitions inherited from the Germanic word. This was particularly true in relation to lawmaking and trials, where ordeal and divination lost ground in favor of the rule of reason. ¹¹³ Some law and economics scholars have supported the idea that “positive superstition” may actually have been socially productive in primitive worlds. ¹¹⁴ Hence, we cannot be sure that abandoning superstition only produced efficiency in medieval society. Nonetheless, it definitely rendered the Comune citizen far closer in mentality to the modern one than the Carolingian subject and land worker, and hence easier to understand from a behavioral perspective for modern competition economists.

Before concluding these behavioral notes, it is worth spending a few words on consumer and gender in the medieval Italian Comune. Today in developed economies there still are gender-differentiated attitudes toward consumption, ¹¹⁵ and persistent disparity in income—mostly, but not exclusively, due to disparity in education. ¹¹⁶ However, in the most economically and socially developed countries, women and men may be intuitively considered at least as roughly similar in terms of consumer power when it comes to purchasing primary goods and services. Moreover, gender equality is at the core of EU policies, ¹¹⁷ and this leads us to hope that soon there will be full equality among genders, although further progress is needed according to experts. ¹¹⁸ Unfortunately, the situation in medieval Italy was very far from these ideals. For instance, an anthropological and archeological study on Trino Vercellese in the thirteenth century, based on isotope evidence, shows differences in nutrition, based not only on social status but also on gender. ¹¹⁹ Women had access to less food and food of lesser quality for most of their lives, although this may have actually played in favor of their longevity. ¹²⁰ Hence, when we consider the medieval Italian consumer, we need to keep in mind that market segmentation induced not only status but also gender, with these variables introducing further complexity in the medieval world scenario. Whereas today both men and women can be considered as consumers, in medieval Italy, women, especially those of lower status, unfortunately could not be counted as “full consumers.” ¹²¹

VI. Notes on Some Aspects of Price Theory and Practice in EU Competition Law: Old or New Stories?

Twenty-first-century inhabitants of Italy not only metaphysically, but also physically, walk on the paths of their medieval ancestors every day. Among those paths, there is the renowned via Francigena, perhaps the most important Italian medieval trade route, which, through France, connected Canterbury to Rome, granting medieval trade a European dimension. ¹²² Nonetheless, it is unlikely that modern Italians think in identical ways—not only in terms of society at large, ¹²³ but also in terms of law and business. ¹²⁴ What do modern competition law and economics experts think about prices nowadays? Of course, they are a rather limited circle of experts. Similarly, in the Middle Ages, knowledge of law (and of rudimentary economics) was restricted to very few operators, certainly fewer than today. ¹²⁵ In this section, we will try to understand whether contemporary theory has any connection with the medieval experience and whether the medieval world offers any insight on the present way of thinking about fair pricing. We will also consider the point of view of consumers, who usually are not experts in this field but who are important stakeholders, as were Comuni citizens in the Middle Ages. ¹²⁶

There are several lenses through which price theory within the EU legal system can be approached: the cases that deal more closely with price theory are those on predatory pricing ¹²⁷ and excessive pricing. ¹²⁸ Both strategies are intuitively simple. Predatory pricing is an exclusionary abuse and usually consists of two connected actions: first, keeping prices under production costs, in order to win against competitors; second, once competitors have been pushed out of the market, the predator can charge supracompetitive prices and recoup the temporary losses incurred in phase one. Excessive pricing is an exploitative abuse and consists of fixing prices that are in some way “too high”—although finding the right benchmark for establishing competitive or fair prices is an extremely complex issue.

Predatory pricing theory has today evolved through a very sophisticated analysis mostly based on hardcore economics. ¹²⁹ Medieval philosophers were in a time far away from when such complex subject matters need mastering. ¹³⁰ Whereas medieval theory and practice are mostly concerned with meeting consumers’ primary needs, the concept of excessive pricing appears closer to the scope of medieval Comuni legislation and more relevant for the purpose of these notes. Hence, here the focus is mainly on EU excessive pricing theory. I will also focus on the influence a state may have on pricing, bearing in mind the essential traits of EU state action theory. As we have seen, some Comuni adopted protectionist practices, whereas the practices of others strongly opposed them. ¹³¹

Starting with excessive pricing, Article 102(a) of the Treaty on the Functioning of the European Union (TFEU) makes express reference to the possibility that a firm in a dominant position may impose “unfair purchase or selling prices or other unfair trading conditions.” Hence, the ability of a dominant firm to affect prices to the detriment of its counterpart is caught both on the buying side (toward supplier) and on the selling side (toward purchasers/consumers). Although the Court of Justice of the European Union’s (CJEU’s) case law on this topic is not particularly copious, ¹³² academic literature has produced interesting theories that try to understand what “unfair price” should mean for modern competition policymakers. ¹³³ Moreover the European Commission has intervened on excessive pricing in recent times, adding a degree of economic analysis to these cases. ¹³⁴ The varieties of theories and tests devised by economists and lawyers might make us think that this is a rather undeveloped branch of competition law that still requires intense research efforts.

In General Motors, the CJEU stated that a price is excessive when it exceeds “the economic value of the service.” ¹³⁵ A more elaborated decision is found in the EU seminal case on excessive pricing, United Brands. ¹³⁶ This case arose in relation to a Commission investigation on UBC pricing policies and a subsequent charge of excessive and discriminatory prices for the Chiquita brand of bananas in several European countries. Although the Commission’s charge was rejected by the European Court of Justice (ECJ), the Court proposed a two-stage test—which in the light of the Commission decision in Port of Helsingborg ¹³⁷ is thought by most commentators as cumulative. ¹³⁸ Excessive pricing may derive from a “comparison between the selling price of the product in question and its cost of production, which would disclose the amount of the profit margin.” ¹³⁹ If the profit margin is excessive, it will be necessary to determine whether the price “is either unfair in itself or when compared to competing products.” ¹⁴⁰ As we have seen, this is not too dissimilar to the mechanism through which medieval theory and practice tried to identify a fair price for products. The method at issue in most economic contexts runs into the difficulty of identifying production costs, as was the case in Italian Comuni practice. Therefore, this method has been criticized for its lack of precision and for opening doors to litigation and the decision of courts. ¹⁴¹

A trait of modern competition law that seems to find its antecedent in medieval price theory and practice is the importance of the political effects of certain decisions on excessive pricing, especially when decisions concern primary goods or services. According to Motta and de Streel, at times the political dimension of excessive pricing will prevail over the economic one. Therefore, competition authorities may find themselves in the difficult situation of having to take action despite the absence of market failure. ¹⁴² The political relevance of these decisions may often emerge in the words of the competent EU authority. For instance, recently the Commission has been dealing with the Gazprom case, where Gazprom, the biggest Russian company, was accused of excessive pricing when selling its gas to the European market. This case did not culminate in a decision, although commitments were proposed. ¹⁴³ On the one hand, it showed the potential limits of the Commission’s power to tackle issues of excessive pricing imposed by “State compelled companies.” ¹⁴⁴ On the other hand, in the statement released by DG-Comp Commissioner Vestager, one may recognize the acknowledgment of the political dimension of the case.

We believe that Gazprom’s commitments will enable the free flow of gas in Central and Eastern Europe at competitive prices. They address our competition concerns and provide a forward-looking solution in line with EU rules. In fact, they help to better integrate gas markets in the region. This matters to millions of Europeans that rely on gas to heat their homes and fuel their businesses. We now want to hear the views of customers and other stakeholders and will carefully consider them before taking any decision. ¹⁴⁵

If the present practice of EU excessive pricing is based on an analysis that does not seem too distant from the medieval one—at least in the version proposed in United Brands—academics have devised several theories. ¹⁴⁷ For instance, especially in the U.S., there is a general belief that, absent barriers to entry, excessive pricing is beneficial because it will invite new entrants. ¹⁴⁸ This theory has been strongly criticized by Ezrachi and Gilo, who have shown that excessive pricing does not, in practice, attract new entrants nor is excessive pricing self-correcting. ¹⁴⁹ Another theory that still needs to be convincingly challenged is the one based on technological innovation. This thesis was affirmed in the Verizon v Trinko case ¹⁵⁰ and was subsequently endorsed by European academics. ¹⁵¹ The underlying idea is that prohibiting excessive pricing might set counterincentives for firms to invest in research and development (R&D).

It should be noted that this thesis is based on the idea of innovation inherited from the so-called industrialization of innovation. This phenomenon started in Germany at the end of the nineteenth century and presupposes a commitment to substantial investment in R&D, which in turn is carried out by a team. ¹⁵² As we have seen, this model of innovation does not describe the Italian Comuni innovation system, where financing was often externalized to the public sphere and where there is no evidence of a team organization for the specific purpose of carrying on R&D.

VII. Conclusions

These notes on medieval price theory and practice show that this area of law and economics was already perceived as extremely complex in medieval times. Although Italian Comuni were, in the Western world, among the most sophisticated institutions of the time in terms of competition and trade policy, they struggled to identify clear policy lines for pricing. Besides the remarkable theoretical efforts by scholastic philosopher and theologians, practice shows the centrality of politics in price setting—especially for food, but not exclusively. The market was already regarded as an important mechanism for obtaining fair prices, especially in international trade. The international and internal economies of some Italian Comuni, such as Genoa, relied almost exclusively on market mechanisms, although protectionist measures were not unknown in some Comuni legislation, such as that of Venice. Antimonopolistic legislation was widespread in Italian Comuni and aimed to keep artisan’s profits as low as possible. Squeezing artisans’ profit margins favored the great players of those times—the merchants—who were able to compete in the international trade arena. One may imagine that, at least for manufactured goods, competition was rather fierce, especially in those Comuni where no protectionist provisions in favor of artisans were adopted, for example, Genoa. The economic and political relationship between artisans and merchants influenced both international and local markets. On one hand, despite the absence of state aid and state action rules, certain communal realities, such as those in Genoa, greatly limited protectionist measures, showing trust in the welfare benefits of trade.

Although technological innovation played an important role in the economic miracle represented by Italian medieval Comuni, the innovation system seemed to have been based on different mechanisms than today. In Comuni such as Bologna, technologic innovation—and especially its dispersion—was externalized by merchants to the Comune, as artisans were too poor to provide financing. This means that modern competition theory on excessive pricing and innovation, based on private incentives to innovation, would be hard to apply to the medieval economic contexts that are the object of these research notes. In addition, despite the great contribution of technological innovation to Italian Comuni production and despite a flourishing market for manufactured luxury goods, everyday Comune life must have been rather different from the one enjoyed by citizens of modern developed economies. The frequent lack of primary goods may have influenced policymakers in terms of developing strong political skills in relation to pricing. The regular supply of primary goods was a matter of public order, even before being a concern for social justice.

For Comuni commoners in medieval Italy, scarcity or famine may have been frequent experiences. Unstable economic conditions may well have influenced them as consumers, along with a different set of values and cultural points of reference than the upper sections of Comuni society and with a substantial gender imbalance. It is hard to say whether medieval Comuni consumers were more or less rational than modern EU consumers. In Herbert Simon’s words, it may well be that a degree of irrationality was, is and will always be an “invariant of human behavior.” ¹⁵³ The complexity of the human mind and the importance of such complexity for efficient governance are probably the closer trait d’union between ancient and modern times. But what seems to distinguish modern times from ancient ones is that nowadays there is an increased attempt to understand in depth the connections between law, economics, psychology, and politics—in a constant tension to improve the living conditions on this planet.