STRATEGY AND STRUCTURE OF MARKET COMPETITION : THE TAIWANESE CABLE TV INDUSTRY IN THE 1990

model on complex realities to test its fitness. Fligstein’s (1990) famous study on the changing industrial structure of the United States focuses closely only on the structural features of the market, measured by the two dimensions of integration (related/unrelated and vertical/horizontal) over a long period of U.S. industrial history. The control strategies of firms that target a wider spectrum of market dimensions with a shorter time span are largely overlooked. In addition, his analysis focuses mainly on the interplay between state antitrust policies and the coping strategies of the dominant firms, while tending to downplay the dynamism of control among firms and inside markets over a relatively short period of time. I hope that this research has contributed toward filling these voids. The sociological perspective of “market as politics” (Fligstein 1996) is substantiated and further developed by analytically embedding it in the experiences of Taiwan’s cable TV industry. After presenting this perspective, I revisit the history of the industry to show the path-dependent mechanisms in the market’s development trajectory. Like other informal economies, the cable TV market was competitive and free from governmental regulation in its early years. However, given the technologically defined economy of scale and the scale of market that the industry had achieved, there were no initial signs of development toward a natural monopoly. The intuition of economics would tend to regard an informal economy like this as a typical “free market. ” However, closer empirical examination shows that it was embedded in the business logic of family enterprises, local networks of neighborhood and factions, and reciprocal cooperation among competitors aimed at stabilizing the market from the disturbance of outside hostility (e.g., firms in “other” markets or the government). The 1993 Cable TV Law designed a competitive system with five licenses issued in each area; it was touted as a victory for democracy by the opposition parties. It represents a unique case of the large-scale, “voluntary formalization” of an underground economy that was once a force of political resistance against governmental control. However, a monopolistic structure centered on two VIMSOs quickly grew out of a seemingly endless string of conflicts, and business misconduct has ironically turned the new medium into a threat to democracy. A typical explanation would be that it was a “legal monopoly” created by the artificial imposition of a franchise system. However this cannot be said for Taiwan’s cable TV industry. The bidding system was competitive, and governmental intervention was almost nonexistent. I argue that the interactions between the competitive strategies of firms (e.g., MCPs and “aggressive quitters”) and the rules of the two-tiered competition broke the existing social equilibrium and brought about ultra-competition in the market field. Firms in a field that is full of uncertainty look to each other for any hints of the “fittest” business pattern, making legitimacy more crucial than efficiency. The unique business pattern of Taiwan’s cable TV channels and vertical integration as an axial strategic layout were largely influenced by the success of ERA in the early legalization period. THE DEVELOPING ECONOMIES 280 In this ultra-competitive market, even independent systems with well-planned investments and efficient operations stood little chance. In the absence of private or governmental governance, the only stabilizers were mergers and collusion (i.e., “hierarchy” through the internalization of transactions or “quasi hierarchy” through coercive networks) supported by the financial power of big companies. Even when it is fierce, socially disembedded competition, conceived of as homogeneous and beyond regulation, can select or discipline the players who are less, if not least, efficient. In the Western context, economic formalization entailed the imposition of public constraints on market competition that threatened a society’s common values. Institutions, such as the prohibition of child labor, welfare provisions, organized labor, minimum wages, and environmental regulations, infused the public interest into market competitions that earlier were driven by private interests alone (Portes, Castells, and Benton 1989; Cheng and Gereffi 1994). Ironically, Taiwan’s cable TV industry in its informal stage was originally part of the country’s democratization, as it involved the struggle for freedom of speech and was a medium that nurtured public values. The result of the formalization of Taiwan’s cable TV market was a trajectory opposite to its western counterparts. It became an irresponsible and unaccountable medium that not only obstructed the qualitative improvements of the newly born democracy, but also intervened aggressively into legislative and administrative processes for its own interests. This historical twist could be called “private formalization,” or more precisely “formalization without the public,” in comparison with formalization in the western context where public values were enhanced. Retrospectively, the democrats in Taiwan failed to foresee the disappointing consequences when they gave in, because they were constrained by the cognitive framework of being a political opposition aiming to “fight against the authoritarian state with a freed market. ” The experience of Taiwan’s cable TV industry represented a vivid lesson and a challenge for newly democratized countries: how to create a better market with a better politics in which institutional arrangements are deliberately debated and carefully implemented, instead of naively believing in laissez-faire, and that the lack of institutional arrangements will spontaneously bring a harmonious order to existence. 23 Akerlof offers this as one mechanism, among others, in his analysis of “lemon” cars (1984). He shows how information asymmetry (or quality uncertainty) can lead to a reversed selection effect of market competition. 24 This historical background is important for us in understanding why the reemergence of “informal economies,” both in the cores and the peripheries of the world economy, became a focus of human concern and research interest after the late 1980s. 281 CABLE TV INDUSTRY