CO-OPETITION

by Adam M. Brandenburger and Barry J. Nalebuff

CO-OPETITION

• RECOGNIZES THAT BUSINESS RELATIONSHIPS HAVE MORE THAN ONE ASPECT

• BY IDENTIFYING ALL THE PLAYERS AND ALL THE INTERDEPENDENCIES, GAME THEORY EXPANDS THE REPERTOIRE OF STRATEGIES

LOOK FOR COMPLEMENTARY

OPPORTUNITIES AS WELL AS COMPETITIVE THREATS

BIGGER ‘BIGGER PICTURE’

• GAME THEORY GIVES MORE COMPLETE PICTURE OF BUSINESS RELATIONSHIPS

• AVOIDS EXCLUSIVE FOCUS ON COMPETITION(win-lose)

• RECOGNIZES THAT CHANGING THE GAME DOESN’T CAN RESULT IN WIN-WIN

Game theory

• Using game theory allows us to consider “changing the game” WHY is that helpful?

• You can make the game you want…to your advantage. HOW?

• Change the player, added value, rules or tactics.

• PARTS are the levers for moving the world of business ala Archimedes.

Change Players

• Even if you can’t make money in a game, figure out who stands to gain from your entry and make them pay (Holland Sweetener)

• once you’re in the game try to change who else is in the game; try to bring in customers, suppliers, complementors, competitors (e.g.credit union/auto sales)

ALLOCENTRISM• ADDED VALUE: PUT YOURSELF IN THE

SHOES OF OTHER PLAYERS TO ASSESS HOW VALUABLE YOU ARE TO THEM

• RULES: PUT YOUR SELF IN THE SHOES OF OTHER PLAYERS TO ANTICIPATE REACTIONS TO YOUR ACTIONS

• PERCEPTIONS: PUT YOURSELF IN THE SHOES OF OTHER PLAYERS TO UNDERSTAND HOW THEY SEE THE GAME

YOUR ADDED VALUE=THE SIZE OF THE PIE WHEN

YOU ARE IN THE GAMEMINUS

THE SIZE OF THE PIE WHEN YOU ARE OUT OF THE GAME

Change Added Values• With a monopoly its ok to limit the added

values of other players (nintendo)• In competitive situation, you need to build your

own added value, e.g. improve quality at low incremental cost or vice versa

• but only way to protect added value is to create relationships with your customers and suppliers…have a loyalty program (Aadvantage), because it doesn’t disappear even when imitated!

Change Rules

• Usually we think we should charge more to our customers and less to competitors

• changing this rule is possible, e.g., introduction GM card (cash award)and Aadvantage (in kind award): latter is better because it increase the size of the pie by delivering more value for same price)

Change Tactics

• Shift perceptions– lift fog, e.g.display credibility through

guarantees, free trials, ads or ask for credibility by requesting guarantee, pay for performance contract

– preserve fog, e.g hide information, explain away failure

– stir up the fog e.g. create complex pricing schemes

Change Scope• Look at the game as part of an even bigger

game…change the links between– added values--price superior product high so

you don’t eat away at incumbent’s existing product

– rules--if you have power get long-term contracts with suppliers, or offer package discounts

– tactics--get another player to believe that what you will do in one situation depends on what happens in another.

CUSTOMERS

COMPETITORS

SUPPIERS

COMPLEMENTOR

THE VALUE NET

company

COMPANIES ARE

• COMPLEMENTORS IN MAKING MARKETS

• COMPETITORS IN DIVIDING UP MARKETS

SYMMETRIES OF THE VALUE NET

CUSTOMERS AND SUPPLIERS PLAY SYMMETRIC ROLES

COMPETITORS AND COMPLEMENTORS PLAY MIRROR-IMAGE ROLES

• A PLAYER IS YOUR COMPLEMENTOR IF IT’S MORE ATTRACTIVE FOR A SUPPLIER TOPROVIDE RESOURCES TO YOU WHEN IT’S ALSO SUPPLYING THE OTHER PLAYER THAN WHEN IT’S SUPPLYING YOU ALONE

• A PLAYER IS YOUR COMPETITOR IF IT’S LESS ATTACTIVE FOR A SUPPLIER TO PROVIDE RESOURCES TO YOU WHEN IT’S ALSO SUPPLYING THE OTHER PLAYER THAN WHEN IT’S SUPPLYING YOU ALONE

• A PLAYER IS YOUR COMPLEMENTOR IF CUSTOMERS VALUE YOUR PRODUCT MORE WHEN THEY HAVE THE OTHER PLAYER’S PRODUCT THAN WHEN THEY HAVE YOUR PRODUCT ALONE.

• A PLAYER IS YOUR COMPETITOR IF CUSTOMERS VALUE YOUR PRODUCT LESS WHEN THEY HAVE THE OTHER PLAYER’S PRODUCT THAN WHEN THEY HAVE YOUR PRODUCT ALONE

THINK COMPLEMENTS

• FIND WAYS TO MAKE THE PIE BIGGER RATHER THAN FIGHTING WITH COMPETITORS OVER A FIXED PIE

• eg. Microsoft benefifts when Intel develops a new chip