Ch. 9: Tacit Collusion – Cooperation to Reduce Competition

The Problem of Cooperation

Patterns of choice represent decisions by players to compete, cooperate, or renege on a cooperative agreement. Insert the prisoner’s dilemma, but lucky for you, this isn’t a blog about economics so I’ll spare you the nitty gritty details of game strategy. However, it is still important to understand the types of strategy that come into play when analyzing cooperation.

If both players in a game choose strategy B over strategy A on all rounds, they are choosing to adopt a competitive strategy. Each time players choose strategy A, they are choosing to cooperate to maximize their payoff from the game. If players cooperate with each other on several rounds and then implement an end-game strategy, they are cheating on their cooperative agreement. Ultimately the payoff that one player obtains depends not just on that player’s decision but on decisions made by the other player as well.

General Solutions to the Problem of Cooperation

According to Thomas Hobbes, “cooperation develops only when a central authority (an individual or institution) forces other individuals or firms not to cheat on cooperative agreements.” So essentially, one firm acts as big brother to ensure that appropriate sanctions make the cost of cheating very high. Where big brother may seem a little harsh, another solution to the problems of cooperation lies within the realm of social norms. Some scholars have observed that most economic exchanges “occur within a context of social relations that have norms of expected behavior associated with them.” Therefore, society is essentially holding these stakeholders accountable for the way they choose to cooperate in business.

In the realm of cooperation at Nordstrom, the company has developed a very strict set of partnership guidelines. A deep dive into these guidelines reveals that Nordstrom utilizes a combination of the “big brother” tactic as well as conforming social norms to ensure that suppliers are acting in compliance with these guidelines. These guidelines touch on documentation and inspection, subcontracting, legal requirements, and health and safety as well as conflict minerals and animal welfare; therefore, Nordstrom retains a good deal of central authority over suppliers while also making it costly to suppliers in terms of expected social behavior and reputation should they fall out of compliance with these partnership guidelines.