RDEU hawk-dove game analysis of the China-Australia iron ore trade conflict

Abstract

By combining rank dependent expected utility (RDEU) theory model with asymmetric hawk-dove game model, this paper builds the RDEU hawk-dove game model to resolve the iron ore trade conflict between Chinese steel companies and Australian iron ore companies. Moreover, the impact of corporate benefits, conflict costs, “emotional factors” and “asymmetric factors” on corporate strategic choices are considered comprehensively. The study finds that:(1) When the benefits of Chinese and Australian companies are less than the conflict costs, there are the following conclusions. First, concerning the “emotional factors”, compared with optimism, pessimism has greater impact on the strategic choices of Chinese and Australian companies. Second, the greater the degree of asymmetry in the pricing power of Chinese and Australian companies, more Australian iron ore companies tend to choose the extreme confrontation strategy, and more Chinese steel companies tend to choose the peaceful settlement strategy. Finally, when the emotional factors and asymmetric factors are equal, compared with Chinese companies, the probability of Australian companies adopting the extreme confrontation strategy is higher, which is mainly due to the higher incomes of Australian companies. (2) When the benefits of Chinese companies are less than the conflict costs and the benefits of Australian companies are greater than the conflict costs, regardless of the emotions of both parties in the game, Australian companies tend to choose the extreme confrontation strategy, and Chinese companies tend to choose the peaceful settlement strategy. (3) When the benefits of Chinese and Australian companies are greater than the conflict costs, regardless of the emotions of both parties in the game, Chinese and Australian companies tend to choose extreme confrontation strategy. The research results can provide a reference for Chinese and Australian companies to resolve iron ore trade conflicts.