Game Theory

In nineteen seventy-five, the OPEC nations faced a mathematical paradox: they could maximize profit together through coordination, but each nation had an incentive to produce more on its own. Every nation wanted the others to produce less. Every nation wanted to produce more. Cooperation was unstable by design. Saudi Arabia saw the solution. If one nation controlled enough spare capacity to flood the market, then overproduction became irrational. If Algeria broke the agreement and pumped more, Saudi Arabia would pump even more, bringing prices down for everyone. The mechanism was credible because Saudi Arabia had invested in the capacity to follow through. This is pure game theory: incentive alignment through observable action.