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The North American Fur Trade: Bargaining to a Joint Profit Maximum under Incomplete Information, 1804–1821

  • Ann M. Carlos and Elizabeth Hoffman (a1)

Abstract

We examine bargaining between the Northwest Company and the Hudson's Bay Company using recent models of bargaining under incomplete information. Two previously undisturbed bodies of correspondence are analyzed: letters between the two companies and letters between the Hudson's Bay Company and its London committee. Through merger the companies achieved a joint maximum, but the lengthy and costly bargaining process dissipated much of the potential gain through depletion of animal stocks. Achievement of a joint maximum was hindered by incomplete information, commitment to a strategy which led to bargaining breakdowns, delineation of each party's rights under law, and environmental changes.

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1 See, for example, Wallace, W. Stewart, Documents Relating to the Northwest Company (Toronto, 1934);Innis, H. A., The Fur Trade in Canada (Toronto, 1970);Morton, Arthur S., A History of the Canadian West to 1870–1871 (London, 1939);Rich, E. E., History of the Hudson's Bay Company, 1670–1870, 2 vols. (London, 1959).

2 The few analytical works include the work of Carlos, Ann, The North American Fur Trade,1804–1821: A Study in the Life Cycle of a Duopoly (New York, 1986);The Causes and Origins of the Canadian Fur Trade Rivalry, 1804–1821,” this JOURNAL, 41 (12. 1981), pp. 777–94; and The Birth and Death of Predatory Competition in the North American Fur Trade: 1810–1821,” Explorations in Economic History, 19 (07 1982), pp. 156–83.Another recent paper by Enders, Alice T. and Macleod, W. Bentley, “Competition and Collusion in the North-American Fur Trade: 1804–1821” (unpublished manuscript, Queens University, 1984) also looks at the fur trade from a bargaining perspective. However, their analysis differs from ours in two important respects. First, they do not use the primary source material. Second, they do not consider models of bargaining under incomplete information.

3 Myerson, Roger B., “Two-person Bargaining Problems with Incomplete Information,” Econometrica, 52 (03 1984), pp. 461–87; and Cooperative Games with Incomplete Information,” International Journal of Game Theory, 13(1984), pp. 6996;Crawford, Vincent P., “A Theory of Disagreement in Bargaining,” Econometrica, 50 (05 1982), pp. 607–38.

4 The Northwest Company trade in the interior was divided into districts known as departments Over each department there was a Wintering partner.

5 Lamb, W. K., ed., Journals and Letters of Sir Alexander MacKenzie. (Toronto, 1970).

6 Ibid., pp. 416–17.

7 Minutes of Transactions Between Hudson's Bay Company and the Northwest Company 1804–06, Public Archives of Canada [henceforth PAC] Hudson's Bay Company MG20AI reel 18, para. 6.

8 The Northwest Company had been formed by the merger of Alexander Mackenzie's company and the old Northwest Company. The rivalry leading up to this merger was particularly intense and bitter. The Hudson's Bay Company letters at this time speak of “Canadian traders who respect neither justice nor equity but commit open acts of violence….” Hudson's Bay Company Records, Minute Books, MG20AI/219 (PAC, p. 6).

9 Minutes of Transactions, letter of May 1805.

10 Ibid., Letter of 19 February 1806.

11 Ibid., letter of 31 January 1806.

12 Ibid., letter of 19 February 1806.

13 Ibid., letter of 22 February 1806.

14 This period is discussed at length in Carlos, “Causes and Origins.”

15 Hudson's Bay Company Records, London Correspondence Outward—Official—Albany 1800, PAC MG20A6.

16 Course, Elliot, ed., New Light on the Early History of the Greater Northwest: The Manuscript Journals of Alexander Henry and of David Thompson (New York, 1897).

17 Lord Selkirk conceived the idea of a colony at Red River from the description of the area provided by Sir Alexander Mackenzie in his book.

18 A full discussion of the effect of this fall in demand can be found in Carlos, “Causes and Origins.”

19 Coues, New Light, Alexander Henry noted in 1808 that the Blackfeet“brought in wolves, but I sent them to my neighbours [Hudson's Bay Company] as wolves were not in season,” i.e., not in demand, p. 558.

20 In a zero-sum game there are no benefits from cooperation. Anything one firm wins is at the expense of the other firm.

21 Papers Relating to the Red River Settlement, Selkirk Papers, PAC MG19, pp. 1–3000, letter of 3 June 1811.

24 Ibid., letter of 26 June 1811.

26 Ibid., letter of 24 July 1811.

27 Ibid., letter of 6 August 1811.

29 See Carlos, “Birth and Death,” for a discussion of the animal stock depletion.

30 Ray, Arthur, Indians in the Fur Trade (Toronto, 1974), p. 121. The muskrat was affected by changes in the level of precipitation. Any significant increases or decreases in the water levels in rivers decimated the population.

31 London Correspondence Outward, para. 38, 1814.

32 Wallace, Documents, p. 273.

33 Selkirk Papers, August 1815 instructions to Lord Selkirk, p. 1631 n.

36 In spite of the fact that the Hudson's Bay Company was negotiating with the Northwest Company to leave Athabasca under Northwest Company control, the Hudson's Bay Company had already sent an outfit to Athabasca.

37 Selkirk Papers, August 1815 instructions to Lord Selkirk.

38 Ibid., negotiations of 10 December 1815, p. 217n. The actual details of the Northwest Company counterproposal were put forward on 12 December.

39 Ibid., negotiations of 12 December.

43 Ibid., negotiations of 23 December (p. 244).

44 At this point the threats and counterthreats became directly physical. The use of such tactics as bully boys, trading each others' debts, and the kidnapping business is discussed at length in Carlos, “Birth and Death.”

45 London Correspondence Outward, 1817.

46 Rich, E. E., ed., Journal of Occurrence in the Athabasca Department by George Simpson, 1820 and 1821 Report (Toronto, 1938) states that the Hudson's Bay Company trading loss had been 12,000 pounds sterling over a long period (p. 394).

47 The Northwest Company position was severely weakened by the capture of Fort William in 1817 by Lord Selkirk. The Company lost two years' trade, furs in 1817 and trade goods in 1818.

48 Rich, Journal, p. 356.

49 Ibid., p. 361.

50 Selkirk Papers, p. 6960.

51 Agreement for carrying on the fur trade by the Hudson's Bay Company exclusively under the terms within mentioned and Deed Poll, 26 March 1821. See Wallace, Documents, p. 321.

52 The actual personnel on the Hudson's Bay Company committee had also changed. By 1810 the composition of the committee was quite different from what it had been in 1804.

53 There is already some other work in economic history which uses bargaining theory. We have already mentioned Enders and Macleod, “Competition and Collusion.” There is also the work of Liebcap, Gary D. and Wiggins, Steven N., “The Influence of Private Contractual Failure on Regulation: The Case of Oil Field Unitization,” Journal of Political Economy, 93 (08 1985), pp. 690714;Johnson, Ronald N. and Libecap, Gary D., “Contracting Problems and Regulation: The Case of the Fishery,” American Economic Review, 72 (12 1982), pp. 1005–22; and Wiggins, Steven N. and Libecap, Gary D., “Oil Field Unitization: Contractual Failure in the Presence of Imperfect Information,” American Economic Review, 75 (06 1985) pp. 368–85.

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The North American Fur Trade: Bargaining to a Joint Profit Maximum under Incomplete Information, 1804–1821

  • Ann M. Carlos and Elizabeth Hoffman (a1)

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