A model of abstract cooperation in games of uncertainty.
Fordham Urban Law Journal › Vol. 32 Nbr. 5, September 2005
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A model of abstract cooperation in games of uncertainty.
I. INTRODUCTION
Sir Ronald Fisher remarked that it was "Darwin's chief contribution, not only to Biology but to the whole of natural science, to have brought to light a process by which contingencies a priori improbable, are given, in the process of time, an increasing probability, until it is their non-occurrence rather than their occurrence which becomes highly improbable." (1) The idea that evolutionary processes naturally propel a state of affairs toward a higher, perhaps more complex or advanced, state of affairs is one that may extend to any context characterized by a dynamic time frame, including oligopoly models of repeated Prisoner's Dilemma. I argue that, contrary to the popular assertion that coordinated pricing necessarily requires voluntary coordination, (2) oligopoly markets may evolve to a state of cooperation--one of collective profit maximization--absent a conscious state of coordination among the players, or even knowledge of such cooperation. Professor Donald Turner, in his seminal treatise on the definition of "agreement" under the Sherman Act, (3) touches upon the idea that oligopoly may naturally precipitate parallel non-competitive pricing that may reasonably be considered individual conduct, but stops short of asserting that cooperative equilibria may result without any form of conscious commitment to coordinate prices. Turner argues that oligopoly markets are defined by their interdependent nature and that each player will rationally and naturally calculate the consequences of its price decisions with regard to the expected reactions of its competitors. (4) This explanation does not go far enough. While it is true that cooperation is a natural consequence of the interdependent nature of oligopoly markets, it is not necessarily a result of conduct based on conscious regard of future reaction by competitors. While Turner proposes a theory of cooperation based on forward-looking consideration of future reaction, and similarly, George Stigler presents a theory of cooperation based on fear of detection and retaliation, (5) I propose a theory of evolution to cooperation based on the progression of consequences from previous actions. Specifically, George Stigler "reasoned that 'oligopolists wish to collude to maximize joint profits' but 'if any member of any agreement can secretly violate it, he will gain larger profits than by conforming to it,' so a model of oligopoly should focus on the 'problem of policing a collusive agreement...See the full content of this document
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