Liars and Outliers Bruce Schneier: Enabling the Trust That Society Needs to Thrive

Chapter 13

Corporations

Everything we discussed in the previous chapter applies to corporations, and some of the examples we used in the previous chapter were corporations. But because they are actors in so many societal dilemmas—they're legal persons in some countries—they warrant separate discussion. But before examining how societal dilemmas affect corporations, we need first to understand the basic supply-and-demand mechanics of a market economy as a pair of societal dilemmas.

Suppose a local market has a group of sandwich merchants, each of whom needs to set a sale price for its sandwiches. A sandwich costs $4 to make, and the minimum price a merchant can sell them at and stay in business is $5. At a price of $6 per sandwich, consumers will buy 100 of them—sales equally divided amongst the merchants. At a sale price of $5 per sandwich, consumers will buy 150—again, equally divided. If one merchant's prices are lower than the others', the undercutter will get all the business.

The merchants face a societal dilemma, an Arms Race akin to the advertise-or-not example in Chapter 5. It's in their collective group interest for prices to remain high; they collectively make a greater profit if they all charge $6 for a sandwich. But by keeping their prices high, each of them runs the risk of their competitors acting in their self-interest and undercutting them. And since they can't trust the others not to do that, they all preemptively lower their prices and all end up selling sandwiches ...