West Pacific Tuna and Cartels

Here’s a great article from Slate about a useful implementation of a cartel strategy in which small island nations in the Western Pacific work together to protect their collective interests in the tuna trade.

The islands (8 altogether: Micronesia, Kiribati, the Marshall Islands, Nauru, Palau, Papua New Guinea, Solomon Islands, and Tuvalu) make money by selling the tuna fishing rights to big companies. If the islands acted independently, companies could force the islands to compete and offer lower and lower prices for fishing rights. But, in 1992, they formed a cartel, and agreed to collectively limit the amount of fishing in the region. This kept prices high and benefited all members involved.

What about the individual incentive to break the agreement? Surely, one nation could decide to allow just a *little* more fishing, the price would still be high, and make even more money. This could lead to all eight nations doing the same, and the market would collapse back into full-on competition. It is the long-term interests of the cartel which undergird its continued success. The nations benefit from cooperation over the last 20 years, and ensure a stable supply of future resources by preventing overfishing. Sometimes, cartels work.

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2 comments

  1. RSMattson · · Reply

    I’m going to go out of my comfort zone and wade into game theory, is this modeled by the “tit-for-tat” strategy, where each player just mirrors the other player’s previous strategy? “Reputation matters” I suppose?

  2. Well a tit-for-tat strategy is one approach to enforcing this type of cartel behavior, since it promises to punish others who deviate from the cartel arrangement. The same could be said for a grim trigger strategy, which promises to punish deviations from the agreement for eternity into the future.

    So, in other words, we can’t really say exactly what strategy is being played if there haven’t been deviations from the agreement. (Perhaps there have been during the course of the 20 years or so it’s been in place, and that could be constructive. I’d say if there had been a deviation, which was temporarily punished, and if the cartel agreement was then re-established, this reflects tit-for-tat.)

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