In the middle of November, the CEO of Vodafone (ADR) Vittorio Colao warned of a “prisoner’s dilemma” in the efforts to offer bundled television and broadband services.  It makes sense for a company to seek unique content to differentiate it from others. However, if all the providers try to secure exclusive content, it triggers an arms race of sorts as they all do the same thing or risk losing out. Colao does not think that securing unique content is necessarily the long-term winning strategy, but if others are starting buying content providers, then it may force him to do the same.

There is another prisoner’s dilemma unfolding. The oil producing cartel will be 55 years old next year. It is not clear, but it may be experiencing an existential crisis. It share of the world oil production has fallen with the rise of non-OPEC sources, like Russia, Norway, the UK, Canada, and significantly in recent years, increasingly the U.S.

In addition to the external threat, OPEC faces internal challenges. There is a divergence of perceptions of national interest by the political elite. Indeed, Middle East politics is arguably incomprehensible without appreciating the tension between Saudi Arabia and Iran.

Generally speaking, OPEC countries have tended to fall into one of two groups. The first has greater oil reserves lower relative to population. Saudi Arabia and Kuwait are the obvious examples. The second has relatively less oil and more people. Iran and Iraq are examples. This has often created conflicting strategies. The former wants to protect the value of their reserves by discouraging alternatives, which means relatively low prices. The latter want to maximize their current value.

OPEC, like all cartels, have governance or enforcement challenges.  It long faced difficulty ensuring that the production agreements and quotas are respected. By OPEC’s own reckoning, there is often production in excess of the prevailing agreement. Last month, while oil prices were falling, OPEC says that it produced 30.25m barrels a day, which is 250k barrels a day over the production agreement. This may under-estimate OPEC’s production. Iran, for example, appears to be selling greater amounts of (condensate) oil than the sanctions allow.