FotH, game theory applied to economics tells us that oligopolies and cartels don’t typically work. In fact, the Nash equilibrium out of game theory is a higher quantity produced than would be by a single monopoly.
Plus, FotH, it has been shown (and is obvious) that the prisoner’s dilemma example is incomplete when applied to a situation where repeated interactions occur, because actors can choose different outcomes based on previous experiences. This is what happens in markets - consumers have memories and are not just “lowest-price-takers.”
I’m not sure I understand your first point, but yes, I admit that the Prisoner’s Dilemma is not the best example of what I want to illustrate.
Tragedy of the Commons really is better, although I think it may throw many people off because it is often presented as if it is not applicable to private property. The truth is that it merely takes on new forms under private property.
To make this clear, first let me illustrate a more traditional presentation of the “tragedy.” In Haiti there is a problem of soil erosion due to people chopping down too many trees. On the one hand, the Haitian people want the wood from the trees, on the other, they don’t want the soil to be eroded, which causes landslides and such. So there are two conflicting but simultaneously desired poles: possession of wood and possession of good soil. If one person chops down a tree, it will not lead to poor soil, so it’s in everyone’s interest to cut down a tree. But at some point this leads to a qualitative change and everyone must confront the problem of bad soil–a cost that outweighs the benefit each gets from the wood s/he chopped.
Now let’s transform this scenario into Wal-Mart vs. the mom-and-pop. Let’s assume that there is two things that everyone wants, two poles: to buy cheap goods at Wal-Mart and to preserve the mom-and-pop. Why do they want to preserve the mom-and-pop? Perhaps each person has a specific good they buy there (such as cream soda) or perhaps they want it preserved for more intangible reasons. Perhaps it is an old store that people in the community look at with a sense of pride. Perhaps they like the atmosphere of shopping there. If one person buys all of their groceries at Wal-Mart, it won’t cause the mom-and-pop to close and s/he will benefit by getting the groceries at a lower price. But again, if a certain number of the people buy a certain percentage of their groceries at Wal-Mart, then a qualitative change will occur, the store will close, and everyone will have to deal with a cost which might outweigh the benefits that cheap Wal-Mart goods provide.
Of course the cheap goods that Wal-Mart provides could outweigh the loss of the mom-and-pop. But to suggest that because the market has decided that the mom-and-pop should go out of business means ipso facto that the community has experienced a net gain is rather naive and dogmatic.
