I suppose the cycle of increasing prices could be broken in one of two ways in a purely economic way:
1) The increasing profits either increases the benefit for the the gas stations to break the truce and slightly lower prices again (or for a new competitor to do the same).
2) The vast majority of cars entering the town are not desperate for fuel (or at least not so desperate as to be extorted) but are merely considering getting fuel here. Without knowing it, the gas stations are actually in competition with the gas stations of neighbouring towns.
This was a toy example, there is no context to it and so little opportunity to speculate on how could this situation develop further. Implicit collusion is not unheard of in real life and could be broken in a variety of ways (including government agents showing up and asking questions).
Not really; there are plenty of real world business examples. This book examines some of them. There are a lot of cases where all the actors involved would be harmed by instigating a race to the bottom (they would gain a temporary profit, but their competitors would quickly follow suit leaving them worse off,) and barriers to entry into the business are high enough that it’s not possible for just any idiot to enter and break the equilibrium.
None of the examples in your link are prisoners’ dilemmas. If I had a copy of the book, how could I find relevant examples? And if I have an example that looks coordinated, how can I tell that it was not explicitly coordinated?
I don’t remember wherein the book you would find the relevant examples, since it’s been about a year since I returned it to the library.
If you have an example that looks coordinated, then it’s possible that it was explicitly coordinated, but in practical terms, explicit collusion that we can’t catch and prevent has largely the same effect as implicit collusion.
I’m sure implicit collusion exists in the real world, I’m not so convinced there are “plenty of real world business examples” which are purely implicit and, for example, do not involve regulatory capture. My impression is that industries which successfully build high barriers to entry and enjoy abnormal profit rates generally do so with the help of government agencies.
It doesn’t have to be, if the relevant issue is not whether the overall position of the author is correct, but whether the specific relevant examples are legitimate.
Regulatory capture is certainly a pervasive and significant problem. When given the option to pursue that kind of advantage, corporations would be foolish to pass it up; they’d only be outcompeted by other corporations which were not so reserved. But that doesn’t mean that in the absence of regulatory capture, implicit collusion (or even explicit, when the industries can get away with it) will not occur.
...life would be great, but what does that crowd of townies with torches and pitchforks is doing outside of my house?
I suppose the cycle of increasing prices could be broken in one of two ways in a purely economic way: 1) The increasing profits either increases the benefit for the the gas stations to break the truce and slightly lower prices again (or for a new competitor to do the same). 2) The vast majority of cars entering the town are not desperate for fuel (or at least not so desperate as to be extorted) but are merely considering getting fuel here. Without knowing it, the gas stations are actually in competition with the gas stations of neighbouring towns.
This was a toy example, there is no context to it and so little opportunity to speculate on how could this situation develop further. Implicit collusion is not unheard of in real life and could be broken in a variety of ways (including government agents showing up and asking questions).
The trick is to cooperate among a wide enough group that you can set your customers’ expectations.
It’s hard to do implicit collusion among a wide group, especially nowadays in a global environment.
Not really; there are plenty of real world business examples. This book examines some of them. There are a lot of cases where all the actors involved would be harmed by instigating a race to the bottom (they would gain a temporary profit, but their competitors would quickly follow suit leaving them worse off,) and barriers to entry into the business are high enough that it’s not possible for just any idiot to enter and break the equilibrium.
None of the examples in your link are prisoners’ dilemmas. If I had a copy of the book, how could I find relevant examples? And if I have an example that looks coordinated, how can I tell that it was not explicitly coordinated?
I don’t remember wherein the book you would find the relevant examples, since it’s been about a year since I returned it to the library.
If you have an example that looks coordinated, then it’s possible that it was explicitly coordinated, but in practical terms, explicit collusion that we can’t catch and prevent has largely the same effect as implicit collusion.
The book doesn’t look unbiased :-)
I’m sure implicit collusion exists in the real world, I’m not so convinced there are “plenty of real world business examples” which are purely implicit and, for example, do not involve regulatory capture. My impression is that industries which successfully build high barriers to entry and enjoy abnormal profit rates generally do so with the help of government agencies.
It doesn’t have to be, if the relevant issue is not whether the overall position of the author is correct, but whether the specific relevant examples are legitimate.
Regulatory capture is certainly a pervasive and significant problem. When given the option to pursue that kind of advantage, corporations would be foolish to pass it up; they’d only be outcompeted by other corporations which were not so reserved. But that doesn’t mean that in the absence of regulatory capture, implicit collusion (or even explicit, when the industries can get away with it) will not occur.