The Review of Austrian Economics, 16:4, 309–326, 2003.
2003 Kluwer Academic Publishers. Manufactured in The Netherlands.
Networks, Law, and the Paradox of Cooperation
BRYAN CAPLAN email@example.com
EDWARD STRINGHAM firstname.lastname@example.org
Department of Economics, San Jose State University, San Jose, CA 95192
Abstract. There is a tension between libertarians’ optimism about private supply of public goods and skepticism
of the viability of voluntary collusion (Cowen 1992, Cowen and Sutter 1999). Playing off this asymmetry, Cowen
(1992) advances the novel argument that the “free market in defense services” favored by anarcho-capitalists
is a network industry where collusion is especially feasible. The current article dissolves Cowen’s asymmetry,
showing that he fails to distinguish between self-enforcing and non-self-enforcing interaction. Case study evidence
on network behavior before and after antitrust supports our analysis. Furthermore, libertarians’ joint beliefs on
public goods and collusion are, contrary to Cowen and Sutter (1999), theoretically defensible.
KeyWords: networks, anarcho-capitalism, collusion
JEL classiﬁcation: L13, K42, L15.
Cowen and Sutter (1999) argue that libertarian doubts about the viability of collusion are
inconsistent. How, they ask, can free-market economists be simultaneously optimistic about
the private production of public goods, but skeptical about collusion? Collusion is, after
all, a public good vis-a-vis competing ﬁrms. Cowen and Sutter’s challenge may be dubbed
the Paradox of Cooperation: Laissez-faire can cope with either the monopoly or the public
good problem, but not both.
Libertarians who dismiss concerns about collusion are at best
Cowen (1992) goes further by claiming that in so-called network industries, libertarians
are not just over-conﬁdent, but wrong: Laissez-faire leads to monopoly, not competition.
Although his network industry argument poses a challenge for more moderate libertari-
ans too, Cowen primarily employs it to expose the fundamental weakness of the radical
anarcho-capitalist position (Rothbard 1978, Friedman 1989): An excellent example of a
network industry is the very free market in defense services that anarcho-capitalists favor.
In consequence, anarcho-capitalists are sorely mistaken about the consequences of their
ideas if tried.
We maintain that these critiques are thought-provoking but wrong. The dilemmas that
Cowen (1992) and Cowen and Sutter (1999) put forward are artiﬁcial. Cowen’s (1992)
network industry argument neglects the deep contrast between prisoners’ dilemmas and
coordination games; voluntary solutions are self-enforcing for the latter but not the former.
Cowen and Sutter’s (1999) Paradox of Cooperation likewise glosses over major dissim-
ilarities between collusion and traditional public goods. Empirically, moreover, there is