PeppercomBlog

Trustbusters and Troublemakers

Posted by Milos Sugovic

Giants have every reason to dread the perception of price-fixing and the actions of their “competition,” at least until June 23 of this year when the most effective cartel-fighting tool expires. Tech titans, or Googlopolies, are already on the radar as the Obama administration revs up its fight on predatory pricing and price-fixing. It seems the feds are increasingly turning their attention to the latter, and will continue to rely on none other than the prisoner’s dilemma framework.

The prisoner’s dilemma has helped antitrust authorities protect consumers and fight cartels via a section of the Antitrust Criminal Penalty Enhancement and Reform Act of 2004. It worked thus far by providing tempting offers to crooked companies and letting them off the hook for ratting out fellow price-fixers. Giving a break to tattletales is nothing new; it’s the age old prisoner’s dilemma game which can result in and preserve sub-optimal market outcomes, or, if used strategically, can ensure market outcomes that improve the welfare for all.

How is the latter achieved in antitrust legislation? By tempting squealers. 

To Cooperate or Not?

Posted by Milos Sugovic

The TechCrunch policy of breaking every embargo (unless you’re on their “friends” list) came as a bit of a shock to the PR community. As an economist, I’m not surprised at all. Adhering to an embargo is a dominated strategy, which means outlets have an incentive to break it. So what’s a PR firm to do if outlets stop cooperating? Use carrots and sticks. 

First, let’s get the facts down. A portion of stories are embargoed, meaning that PR firms pre-brief the outlet and ask for the story to be released no earlier than a specific time. But with added stress, desperate PR firms are blasting embargoed news to too many media outlets, which increases the probability of a leak. That’s because the first outlet at the finish line with the story in hand gets all the cream, while suckers that played by the rules get what’s left over.  

So TechCrunch has decided to break EVERY embargo here on out, and rationally so - they’re playing the dominant strategy. To show this, I’ll use a simple game-theoretic framework: a two player, two option scenario, with outcomes that depend on the strategy of each player.