When Weak States Win: A Supermodular Game-Theoretic Account of the 2006 Bolivia–Brazil Gas Crisis

What if third-party involvement and economic interdependence, often assumed to foster compromise, are precisely what entrench escalation in international negotiations? This paper introduces a supermodular game-theoretic framework to explain how indirect third-party alignment and domestic political constraints can produce strategic complementarities that lock actors into rigid bargaining positions. Drawing on an analytic narrative of the 2006 Bolivia–Brazil gas negotiations, we demonstrate how Venezuela’s political and financial backing emboldened Bolivia to harden its stance, while Brazil’s capacity to respond assertively was neutralized by domestic audience costs, intensified by electoral pressures. The result was not mediation or de-escalation, but a contested equilibrium shaped by positive feedback dynamics. Our findings show that third-party support can strategically reshape payoff structures in ways that incentivize escalation, even under conditions of deep interdependence. This framework advances the study of international negotiations by modelling how escalation can emerge endogenously from the strategic structure of trilateral interactions.

Keywords:
International Negotiations; Crisis Escalation; Strategic Complementarity; Supermodular game theory; Audience Costs