All economists know that in an industry with only a few companies, these companies could easily start jockeying for position and interact frequently with each other, and the strategy of any one party might affect the final outcome. Economists often use game theory to analyze such complex situations.
Game theory works like a game of chess -- one move for you, one move for me, thus deciding who ends up with what. It includes two factors that are difficult to predict. First, it is difficult to predict your opponent's response.
The second factor difficult to predict is the opponent's state of mind. Playing a game of chess is a quiet occupation, all about moves on the board and opponents rarely reveal anything. In real life, however, revelations and threats are often made in the form of strategy declarations -- "if you dare sell at reduced prices, I am sure to follow with even lower prices." Whether this kind of revelation is true or false will often depend on the personality of the person making it.
Due to the complexity of the opponent's reaction and the difficulty in predicting his state of mind, game participants sometimes want to adopt preemptive strategies by making a first move in order to restrict the opponent's choice of possible reactions. For example, if a company announces its price strategy in an advertisement, thereby making an irrevocable promise to consumers, it will have fixed its future avenues of action. Very possibly, however, it will also have preempted its opponents or restricted their strategic choices, thereby putting pressure on them so that they will not dare or want to act rashly.
We all know that the cross-strait situation is such a game. From Taiwan's perspective, it is very difficult to assess the opponent's reaction. If we are too trusting of the reaction declared by the other side, we will always follow their moves and, naturally, give up our own initiative.
If we ignore their possible reactions altogether, we will not know their strengths as well as we know our own and we could easily make mistakes. The assessment by some that Taiwan's two major political camps are too concerned with and too dismissive of our opponent, respectively, seems to be a reasonable assessment.
When China says that "we will launch an armed invasion if Taiwan declares independence," they are actually employing a preemptive strategy by attempting to use the declaration of their reaction to eliminate Taiwan's choices. Taiwan's planned referendum, although called both preventive and defensive, is in fact also a kind of preemptive strategy, in that it attempts to use a clear display of public opinion to preempt China's possible actions.
According to theory, all proactive attempts at preempting the opponent's strategy are, in fact, to a certain degree strategically restrictive.
When Japan and the European countries a while back showed serious concern for or opposed a Taiwanese referendum, they may have done so because the preemptive strategy represented by the referendum might create another wave of Chinese attempts at preempting Taiwan's actions. Such mutual preemptive behavior gradually restricts the actions of both sides and in fact forces everyone to show their cards.
Finally, to avoid having other people jump to conclusions concerning this article, I want to declare that it purely is a matter of academic analysis. It does not represent the position of this newspaper, nor does it represent the position of this author. This statement is also a preemptive strategy.
Cyrus Chu is a research fellow in the Institute of Economics at Academia Sinica.
Translated by Perry Svensson
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