What keeps the relationship honest, trusting and mutually beneficial is nothing other than the prospect of repetition.
In game theory, this prospect of repetition is known variously as ‘continuation probability’ or ‘w’. Robert Axelrod has poetically referred to it as ‘the shadow of the future’. It is agreed by both game theorists and evolutionary biologists that the prospects for cooperation are far greater when there is a high expectation of repetition than in single shot games. Clay Shirky has even described social capital as ‘the shadow of the future at a societal scale’. Yet businesses barely consider this at all (in fact procurement, by setting shorter and shorter contract periods, may be unwittingly working to reduce cooperation).
Yet there are, when you think about it, two different approaches to business. There is the ‘tourist restaurant’ approach, where you try to make as much money from people on their single visit. And then there is the ‘local pub’ approach, where you make less money from people on each visit, but you profit(?) more over time by encouraging people to come back. The second type business is much more likely to generate that + yield positive sum outcomes then the first.
Excerpt from: Eat Your Greens by Wiemer Snijders