The Prisoners Dilemma and the Ability of Firms to Collude

Prisoner's dilemma and the possibility of collusion of companies Oligopoly is the market of multiple interdependent companies that often tries to guess mutual behavior. There is sophisticated interdependence among companies in the industry. In other words, companies need to consider the impact of their own actions on competitors and their competitors' actions. Result Because the price is higher than the marginal cost, the market we see is also set inefficiently.

First of all, it is illegal to conspire with competitors to maintain high prices. You and your competitors should never talk about pricing at all. But by understanding the plight of the prisoners, you better understand what economists call "hidden collusion". This is because the competitors are not aggressive and the price of the industry remains high. In other words, competitors seem to collaborate without conspiracy. Please imagine that the police arrested you for robbing the bank. Of course you are innocent. They also arrested others with the same crime. In the interrogation room, the police said: "We have seized your accomplice, you have problems, you have to admit that it is easier to make a decision."

Establishing a network organization, setting up various ministries and agencies, and cooperating among companies and NGOs may be somewhat similar to fighting prisoners' dilemmas. A prisoner's dilemma is a hypothetical situation that two prisoners are separated from each other and wiser to not cooperate, but we can not promise to do so because other prisoners do not know if they will do the same. Briefly, if one talks and the other is silent, approval may be free, but the other may get imprisoned for several years. If both are silent (ie they "cooperate"), both are released. A famous political scientist, Robert Axelrod, shows that cooperation will improve when the possibility of future interaction is high, and when actors know that they can trust each other. There are many reasons for this in a network organization, but unfortunately it will take time to establish such trust and interrelationship.

Trust and cooperation are essential for a successful globalization. In this way, the prisoner's dilemma just gets better. As with prisoners' dilemmas, profit is the most disadvantage if all parties cooperate, although profits will be greatest, if cooperation is not rewarded. Therefore, cooperation is logical only when people think that the other party will cooperate. When people choose not to cooperate, regardless of whether it is workers and businesses, citizens and governments, or local people and immigrants, they do not believe that the other party cooperates in return. In this respect, coexistence, communication, and time is the only thing that can build trust.