01 January 2005

On Twiddledee and Twiddledum

First, I shall attempt a summary of the previous post.

"While the official line was that MediaworksTV was a commercially unviable venture, the forced merger came about due to deliberate choices made by both parties to make each other's operations commercially unviable."

While the last post attacked the official explanation on the "rational" portion of its "rational economics" spiel, this post will attack the "economics" portion.

The interesting question raised from the 2x2 matrix of the Dee/Dum game is: if the lose-lose outcome is *the* Nash Equilibrium, why aren't every company in the global media market rushing to bankrupt themselves and their competitors?

Perhaps a way to solve the conundrum is to ask: what were the circumstances that actually allowed Mediaworks and Mediacorp to adopt the beggar-thy-neighbour strategy as a legitimate and legal strategy in the Singapore media market?

Let's put ourselves in their shoes.

"Now here's a great plan: we cut off our own flesh and force them to do the same. Whoever blinks first, loses. Of course, revenue will hurt in the meantime and we'll have negative profits. Who's game for this brilliant idea?"

Indeed, who would say no?

The shareholders, perhaps? But Mediacorp is completely owned by the government, it's not even a listed company. No protests by angry shareholders at the Annual General Meeting for them. And Mediaworks? The govnerment has substantial shares there, through its parent SPH. For there to be zero protests, for the plan to go through, suggests the shareholders and the owners of Twiddledum and Twiddledee, knew about it and approved it...

Senior management, perhaps? But... we all know all the senior positions are in effect government appointments, in which case management = shareholders. In existing cases in the US where management of certain companies defraud their shareholders (Enron et. al.), it was only because management had inside information not privvy to shareholders, and exercised power over the monopoly of information.

Regulatory framework, perhaps? Ah, but from 2000 to early 2004, there was "no legal controlling authority", no antitrust or anti-competition law!

And most importantly, both companies were able to play the beggar-thy-neighbour strategy because they were betting that the government would intervene in the worst case scenario. Because the government still owns both companies (in one way or another).

I will leave it to you, to decide how much of a theatrical production, a charade, an act, this short-lived "media competition" was.

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