A country club or a night club not only provide a physical space for leisure, but they also have rules of entry and conduct. The same is true of places of business or living like shopping malls, apartment complexes, stock exchanges, and financial intermediaries. eBay, for example, is a club that facilitates trade with reputation mechanisms and dispute resolution services. It evaluates the marginal benefits and marginal costs of having various rules or dispute resolution mechanisms and seeks to make its market as attractive as possible. American Express is another type of club that helps ensure that consumers get what they pay for and merchants get paid. Most people don’t think of their credit card as a rule enforcing club, but it is. A merchant that overcharges customers or a customer who does not pay his bills gets kicked out of the club and that encourages honest behavior.
– Edward Stringham, How Private Governance Made the Modern World Possible
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