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.
Companies that rat out fellow price-fixers get off lightly -- they face reduced exposure to civil lawsuits as well as immunity from criminal prosecution. Those that keep quiet get out free, unless of course, their competition squeals and they’re faced with lawsuits from customers. And since nobody wants to be stuck with the “sucker’s payoff,” squealing is the dominant strategy.
But squealing doesn’t always yield positive outcomes in a prisoner’s dilemma game. There are plenty of industries where “ratting out” hurts everyone. I recently had a piece in PR Week where I discussed the prisoner’s dilemma game that’s played between PR firms and outlets, and how ratting out results in broken embargoes and a journalistic race to the bottom.
So it’s important to keep the golden rule taught by the prisoner's dilemma in mind: Acting in one’s self interest does not necessarily serve one’s self interest.
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