Study On Trust Influence On The Formation Mechanism Of A Price Alliance

Along with the rapid development of the economy, China does have excess capacity in some industries. Many manufacturers in order to get rid of the prisoner’s dilemma like "price war", attempted to unify the price of their product, by conspiring to form a price alliance. Since China’s reform and opening up, price alliance is nothing new to us. In the21st century,9well-known color TV manufacturers in China made an alliance for the first time in Shenzhen, successfully created "China Color TV Entrepreneurs Summit", in order to improve the color TVs’retail price jointly. Then, there were many kinds of price alliances such as steel, air conditioning, air tickets, instant noodles and hotel alliance. In one slice of time, price alliance has come into sharper focus. However, these price alliances ended in failure after a flash in the pan.In economics, the price alliance is regarded as a form of monopoly; the allies actually want to set a unified price of a product or service by forming a "price cartel", in order to gain higher returns. In theory, every member in the alliance want to pursuit self-interest maximization. Under the moving of individual benefit, the member in price cartel will deviate from the collusion and finally lead to the disintegration of the cartel mechanism. This is the reason why price alliance is difficult to success.However, in the real life, there are some successful price alliances, which are different from the common price cartel. They are unorganized and form with free will. Competitors in the alliance uniform price successfully by mutual understanding, trusting each other and learning from each other. The fruit sellers outside the east gate of Southwestern University of Finance and Economics is a typical example. There, all the fruits with the same quality have a long maintained unified price. This is no wonder that in the face of benefits, how binding are the so-called self-discipline price?This paper based on the failure of the price alliance in the nine well-known color TV manufacturers in China and the success of the price alliance in the fruit sellers outside the east gate of SWUFE, compares the differences of the two typical cases in the external environment and internal characteristics in detail using the method of comparative analysis. The analysis showed that by joining the believable promise of "trust" factor in the severe punishment mechanism, the price alliance in the off-campus fruit seller showed strong vitality.Because of this, the paper uses the game theory, based on the classic Bertrand model, by changing the hypothesis, introducing the relevant variables "trust", studies how the trust is theoretically influenced on the formation mechanism of a price alliance. The analysis of the model results show that:It is difficult to turn cooperation into fact in a simple game. However, in the infinite repeated game, the "tit-for-tat" trigger strategy can lead to Pareto dominance Nash equilibrium, as long as each of the participants in the game has a high value for their future earnings. Finally, by introducing the factor "trust" in the infinite repeated games, under the influence of trust, even though each of the participants in the game has a low value for their future earnings or the cooperation can only lead to a tiny raise to the earnings, it also can realize the "cooperation", form a price alliance successfully. Thus, the study shows that the existence of trust may suppress "the opportunism behavior", avoid "prisoner’s dilemma", promote a high efficient transactions and cooperates in society.