The Amsterdam Entrepôt is the shorthand term that English-language economic historiographers use to refer to the trade system that helped the Dutch Republic achieve primacy in world trade during the 17th century. The Dutch prefer the term , which has less currency in the English language.
The entrepôt system
In the Middle Ages, local rulers sometimes gave the right to establish staple ports to certain cities. Amsterdam had never received such formal rights (unlike e.g., Dordrecht and Veere), but in practice, the city established a staple-market economy in the 15th and 16th centuries. This economy was not limited to a single commodity, though at first Baltic grain dominated it. It came into being because the economic and technological conditions of the time required a trade-network, based on what is known in economic terms as an Entrepôt, a central point (for a given geographic area) where goods are brought together and physically traded, before they are re-exported to their final destinations. This need followed from the fact that, in those days, transportation of goods was slow, expensive, irregular, and prone to disruption, and that supply and demand for goods fluctuated wildly and unpredictably. The risks entailed by these circumstances put a premium on the creation of such a fixed base, where commodities could be stockpiled prior to marketing and final distribution. Furthermore, concentrating storage, transport, and insurance facilities in one place helped reduce transaction costs and keep long-term prices more stable than they otherwise would have been. The entrepôt functioned thus as a central reservoir of commodities, a regulating mechanism smoothing out fluctuations in supply and demand over time and minimizing the effects of interruptions and bottlenecks.
The entrepôt performed an additional function, a derivative of its primary market-function: the physical proximity of merchants promoted the exchange of information about market forces, prices, and developments in the factors underlying supply and demand. This not only lowered the cost of information-gathering but even led to decreasing marginal information costs. Other things being equal, this externality would lower the total marginal cost of goods trading through the entrepôt. It is a well-known economic fact that in circumstances of decreasing marginal costs, economies of scale occur, which can give an advantage to early entrants that permits them to outgrow their competitors, sometimes even leading to a natural monopoly. This may explain why in the field of entrepôts certain markets (Antwerp, Amsterdam) gained a dominant position for some time, while others (London, Hamburg) were left behind and only came into their own when the special circumstances favoring the others came to an end. In the case of Amsterdam those circumstances changed when the technological possibilities of direct trade improved, obviating the intermediating function of the entrepôt.
Historical evolution of the system
The mechanism underlying the entrepôt trading-system does not explain the peculiar success of the Dutch Republic and Amsterdam in particular. Other merchant cities might have gained this prize and as a matter of fact, Antwerp for a time did. But the Antwerp entrepôt was destroyed with the Fall of Antwerp (1584–1585) and the subsequent expulsion of its Calvinist inhabitants (half of the city population), followed by the centuries-long blockade of the Scheldt trade.
To explain the Dutch success we have to take account of a number of factors that in isolation still do not explain the Dutch primacy in world trade, but whose interplay may go far in doing that. The Dutch had gained an important role in the Baltic trade (grain especially) in the 15th and 16th century because of the nature of commodities exchanged (herring for grain, a low-value, high-volume bulk trade) and the dominance of the Dutch in the herring fisheries. These factors became dominant in this trade because Dutch shippers experienced a structural fall in shipping costs due to revolutionary innovations in shipbuilding (the wind-driven sawmill) — which brought down construction costs — and in ship-design (the Fluyt ship that required smaller crews) at the turn of the 17th century. This so improved their competitive position that they soon dominated the European bulk trades, not only the Baltic trade, but also the salt trade of the Iberian Peninsula.