Game Theory and Mexican cartels. Applying Risk Management to the extortion market

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Game Theory and Mexican cartels. Applying Risk Management to the extortion market

redlogarythm
The term Game Theory is used to describe a method used in mathematics (mainly in its Probability facet) for representing a wide range of scenarios with several possible solutions which depend on the behavior of the intervening agents. Game Theory is not new, it can be traced back to the XIXth century when several French mathematicians (represented by Augustin Cournot) developed a model through which to anticipate possible behaviors in oligopolistic scenarios. During the first half of the XXth century, John Von Neumann and Oskar Morgenstern developed Game Theory in its economic variant in full detail and some of their pupils perfectioned it several years later. During the 1950´s American mathematician John Forbes Nash (all along with several other colleagues) became very well known for its articles and thesis about Game Theory. In fact, he was recruited by the RAND Corporation to apply his theories to the Cold War context. Nowadays Game Theory has become extremely important in the fields of probability, economics, strategy or negotiation since it is very useful as a prediction system based on strictly mathematical rules and variables.

What I´ll try to do with this article is to apply some aspects and exercises of Game Theory to the context of Mexican organized crime in order to venture in a quite simplistic way how Mexican criminal organizations act and why do they do so. This report is not design to be exact or infallible, in fact much of the cartel´s behavior cannot be explained in rational or logic terms and seems to be very much influenced by some degree of paranoia, drug abuse by the criminal actors themselves and sometimes even vengeance. But at the end of the day criminal actors are rational individuals who operate according to a rational behavior pattern. I hope that this analysis of rational operations engaged by Mexican criminal groups is useful.

HAWK VS DOVE GAME APPLIED TO CRIMINAL ORGANIZATIONS

In the Hawk vs Dove game, a criminal organization invades a market niche exploited by another organization/group. The purpose of this game is to determine ``ex ante´´ how the organization whose niche is invaded is going to react, either in an aggressive way (fighting the invasive rival like a hawk) or in a pure passive way (letting the invasive organization to exploit the market, just as a dove would do)
To apply this game to reality let´s imagine a criminal market such as the market for extortion in Mexico City.
As we all know Mexico City and its surrounding towns comprise an immense area populated by dozens of million of people. Over the years local criminality has evolved by partnering and profiting from some of the several big criminal actors conducting activities all over the country. During the 2000´s Mexico City´s little criminal gangs (some of which were extremely violent and vicious, especially those engaged in express kidnapping) started emulating the business methodology of Mexico´s big criminal players. Thus, widespread extortion (which used to be in the hands of corrupt policemen), retail drug distribution, arms trafficking and even the trade in counterfeit goods started falling in the hands of several big organizations that evolved from little gangs until becoming powerful mini-cartels controlling several big areas of the Metropolitan area. Nowadays it´s estimated that approximately between 20-30 gangs (some of them little actors such as Los Tanzanios and some others real heavy hitters such as the Union Tepito) control most of the criminal markets of Mexico City.


Main criminal organizations acting in Mexico City´s 16 municipalities in late 2019. Source: El Universal

One of the most lucrative business for organized crime groups in Mexico and everywhere is the extortion market. It´s a business where profits are easily obtained because contrary to what happens regarding other criminal activities it doesn´t require too much resources or effort, just territory and a level of fear of retaliation/coercion big enough to make ``clients´´ pay for protection.
Let´s apply the Hawk vs Dove game to the extortion market happening in the Municipality of Iztapalapa where at least 5 different gangs manage illicit markets. One of the criminal actors with presence in Iztapalapa is the Tlahuac cartel. Once one of the biggest criminal organizations in CDMX this organization has suffered heavy blows that have resulted in a severe reduction of its territories and criminal portfolios (among which extortion reported a great deal of the organization´s revenues) In fact a week ago, on May 17th, the two main leaders of the Tlahuac Cartel, Diana Karen Perez aka ``La Princesa´´ and  Carlos Alejandro Mendoza aka ``el Cindy´´, were captured by the security forces. After the detention of its two main leaders the Tlahuac Cartel seems to be in position even weaker than before the captures. One of the consequences provoked by this new blow to the Tlahuac Cartel could easily be the infiltration of a rival organization in its zones of influence at Iztapalapa.

Imagine that during this week some members of the Union Tepito (one of CDMX´s most powerful gangs) from the neighboring municipality of Iztacalco start showing up at streets controlled by the Tlahuac Cartel demanding money from local street vendors in order to guarantee protection for their merchandise and place of work.
The Union Tepito has invaded the ``protection´´ market managed by the tlhuac Cartel at Iztapalapa. In the light of this situation the Tlahuac crew can react in two ways: like a dove or like a hawk. If they choose to be a dove, they renounce fighting, thus enabling the Union Tepito continue extorting street vendors at their territory. By the contrary they can identify the Tepito´s men charging cuotas on their territory and kill two or three of them. In this case they have chosen to act as a hawk. That the Tlahuac Cartel chooses to act as a dove or as a hawk depends on the value they assign to the costs (C) of starting a direct conflict with the Union Tepito as well as to the benefit (V) that the extortion market brings them.
Depending on the higher or lower values of C and V the Tlahuac Cartel can act either as a dove or as hawk. How will they make the vital decision of whether entering a conflict or not with one of CDMX´s biggest criminal groups? By weighing up every variable of the equation.
For example, after the Tlahuac leaders Princesa and Cindy were captured last week this organization is in a particularly week situation aggravated by the continuous decline of its presence and firepower all over the CDMX area. If the Tlahuac leaders who have replaced Princesa and Cindy estimate that by starting a direct war with the Union Tepito for the extortion market at Iztapalapa will cause an increase of police presence in the area that might affect other market niches (such as kidnapping or drug distribution) they might think that the costs (C) of behaving like a hawk in terms of police presence surpass the benefits (V) obtained through extortion in the streets invaded by the Union Tepito (thus, C > V) they will behave like a dove letting their rivals taking control of the extortion to street vendors at some areas of Iztapalapa.
By the contrary, if they estimate that by letting the Union Tepito taking control of the extortion market at Iztapalapa they will suffer great losses in terms of income (V) which surpass the costs (C) derived from police presence at the zone (V > C) they will choose to be a hawk and start eliminating the Union´s guys who show up at Iztapalapa demanding ``cuotas´´.

From this initial behavioral scheme, we can enlarge the hypothesis about how will the Tlahuac group behave almost indefinitely. We can deduct, for example, that the more lucrative the threatened market niche is the more aggressive the attacked group will be defending it. Thus, if the extortion cuotas charged to the Iztapalapa street vendors represent a great deal of the Tlahuac Cartel´s revenues in the area, they will be much more predisposed to behave like a hawk attacking anyone who dares to threaten their market niche.

We must take into account that these same options/possibilities would have been considered and analyzed by the attacking group (the Union Tepito) before starting charging cuotas on the street vendors of Iztapalapa. The success of the attacking group depends not so much on the fact that they are able to prevent the Tlahuac Cartel acting as a hawk but on rating effectively the variables C and V applied to them. In our example the Union Tepito should evaluate the benefits (V) derived from invading the extortion market niche controlled by an organization (Tlahuac Cartel) that hasn´t interfered with them before. Depending on the benefit (V) they want to obatin from the attack they can center themselves in market niches more or less valuable for the Tlahuac Cartel. Once the aimed benefit (V) has been determined by the attacking organization they must assess the Costs (C) derived from behaving as a hawk. The higher the costs (C) the smaller the benefits (V) obtained from attacking the Tlhuac Cartel. Imagine that the Union Tepito has only 10 full members capable of acting at Iztapalapa while the Tlahuac crew at the municipality is comprised by 30 people. The Union is clearly in numerical disadvantage and will be forced to assume high costs (C) if they want to start fighting with the Tlahuac people for charging cuotas at Iztapalapa´s street vendors. By the contrary, if the Union bosses know that due to the recent blows the Tlahuac Cartel has been deprived of most of its weapons while the Union Tepito cells have been recently equipped with 30 AR-15s they have purchased from a local arms trafficker, they will be able to palliate a numerical disadvantage with a tactical superiority thus reducing the possible costs (C) in an effective way.

In conclusion, both actors obtain a result (R) from the confrontation that will be higher or smaller depending on the value (V) they pretend to obtain and on the costs (C) they are ready to suffer when deciding whether to behave as a hawk or as a dove. This variable scheme can be translated into a simple equation such as R= V – C
It would be simplistic to assume that Mexican criminal organizations do choose their strategies based only in this type of games/strategies. Nevertheless, this kind of reasoning is in fact recognizable among the different pattern of performance of the cartels. In fact, some of the most famous criminal organization such as the Ndrangheta or the Sicilian Cosa Nostra have applied game theory to their operations (although not in a scientific way, of course) in order to minimize risks and exploit the weaknesses of rival ndrines and coscas.

This article has analyzed how game theory can be used by medium size urban gangs such as the Union Tepito or the Tlahuac gang to evaluate the pros and cons of invading rival territories/businesses such as extortion and of retaliating violently. However, I truly think that game theory (specially in its Hawk vs Dove form) can be applied to broader criminal panorama. For example, it could have been especially useful to the CJNG. This cartel has grown extremely powerful since its creation circa 2012 by relying precisely in the regression and weaknesses of other criminal organizations, taking advantage of their demise before coopting market niches previously owned by very powerful actors such as the Zetas, the original Familia Michoacana or the Knights Templars. When Mencho and his pals began expanding very aggressively during 2014/2015 they could have used this Hawk vs Dove game in an almost natural way, normalizing the cost (C) and benefit (V) variables as the obvious consequences of invading rival market. For example, when CJNG invaded the State of Guanajuato and started trying to coopt the huachicoleo business it could have studied the pros and cons of confronting local criminal networks that ultimately became the Cartel Santa Rosa de Lima.

The examples of Mexican gangs and cartels using game theory to evaluate the risks of expanding or battling rival attackers are almost endless and can sometimes explain in the long term what usually appears as incoherencies, strange alliances or mysterious moves in the violent cartel battlefields.


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Re: Game Theory and Mexican cartels. Applying Risk Management to the extortion market

canadiana
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I guess it depends on the amount of foot soldiers available to be a hawk rather than a dove.Geez what about the poor (pun intended) merchant trying to earn a decent living? Does he pay twice or maybe twice for a month or 2 before the scores are settled? The merchants probably panic when there is a takeover like that wondering how much the next Cartel will charge than the last 1 and whether his business can absorb it!
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Re: Game Theory and Mexican cartels. Applying Risk Management to the extortion market

redlogarythm
Yes Canadiana, you´re right. Much of the times the agressivenes of an organization depends on numerical forces. But sometimes it can also depend on the weaponry, mobilization cappabilities, etc.

And you also stated a good point. Mexico is not Sicily. The extortion market is highly anarchic and chaotic and I´ve heard about lots of businessmen or little businesses paying cuotas to 2,3 or even 4 different groups at the same time. But these are examples of zones of war between several factions that need money desperately. Inside no-go areas where things are stable you can find organized protection rackets being run effectively by a single organization.
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Re: Game Theory and Mexican cartels. Applying Risk Management to the extortion market

Bounty Law
Another factor is analysing how ingrained a rival cartel is in terms of local government and/or police force protection. If a local cartel have corrupted the local tools of the state in a particular town or area then moving on that plaza might be too costly. I wouldn't therefore be surprised if cartels do a considerable degree of intelligence gathering on this front before making such decisions.
MX
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Re: Game Theory and Mexican cartels. Applying Risk Management to the extortion market

MX
In reply to this post by redlogarythm
Nice post, redlogarythm. I really enjoyed this publication. It is now on the main board.

Congrats and thank you for your amazing contributions!

http://www.borderlandbeat.com/2020/05/game-theory-and-mexican-cartels.html
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Re: Game Theory and Mexican cartels. Applying Risk Management to the extortion market

blanco puro
In reply to this post by redlogarythm
amazing post
MX
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Re: Game Theory and Mexican cartels. Applying Risk Management to the extortion market

MX
Yup, best read of the year. It has 2K views on the main page. Red is a damn genius.
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Re: Game Theory and Mexican cartels. Applying Risk Management to the extortion market

Chivis
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In reply to this post by redlogarythm
This was a big hit with journalists and think tankers.....just wanted you to know
 
The way I see it.... the more people that don't like me, the less people I have to please