What is coopetition (co-opetition)?
Coopetition is a business strategy that uses insights gained from game theory to understand when it is better for competitors to work together.
Coopetition games are mathematical models used to examine in what ways cooperation among competitors can increase the benefits to all players and grow the market. The models also examine when it's best to allow competition to divide the existing benefits among players to provide the leading competitors with more market share.
Coopetition -- also spelled co-opetition -- is a portmanteau, combining the words cooperation and competition. Competitive businesses that also cooperate when it is to their advantage are said to be in coopetition.
The principles and practices of coopetition are credited to New York University and Yale business professors Adam M. Brandenburger and Barry J. Nalebuff. They introduced the principles and practices of coopetition in their book Co-opetition, first published in 1996.
Coopetition statistical model
The coopetition model is centered on a diagram called the value net. It is represented as a diamond with one of the four defined player designations at each of the corners. The players are the following:
- customers
- suppliers
- competitors
- complementors
Complementors are competitors whose products add value to the business at the center of this model.
The goal of coopetition strategy is to move the competitors away from a zero-sum game, in which the winner takes all and losers are left empty-handed. The Value Net Model replaces that approach with a plus-sum game. In it, the result is profitable for all the competitors when they work together.
An important part of the model is to identify the variables that will influence the players to either compete or cooperate. Another key part of the model is to determine when it is to a player's advantage not to cooperate.
Examples of coopetition
There are many examples of coopetition. Some notable ones include these three:
- Pfizer and BioNTech. The March 2020 agreement between Pfizer and BioNTech to jointly develop a COVID-19 vaccine is an example of coopetition. The agreement enabled the two pharmaceutical companies to combine development and manufacturing capabilities. As a result, they were able to get the vaccine to market by the end of 2020 and have produced hundreds of millions of doses in 2021.
- Social media. Another example of coopetition is how specialized social media sites, such as dating site Tinder, are using Facebook or Twitter credentials to log users in. Social logins simplify the login process. They are also more likely to bring in new members to the specialized site, while giving the larger competitors a presence on the other platform.
- Amazon Prime and Netflix. These two companies have competing content-streaming platforms. But Netflix is also one of Amazon Web Services' main customers. Service providers like AWS offer complete solutions that include the integration of a range of services. As a result, one part of AWS can find it's working with a competitor of another part of the company.
- Amazon Marketplace. When Amazon opened its e-commerce platform to smaller vendors, those sellers gained access to the bigger company's technology, warehouses, delivery capabilities and larger market. Amazon makes a commission on those sales. It also benefits from more customers interacting with the marketplace, the data it gathers on customer preferences and economies of scale from handling more products.
Benefits of coopetition
The simultaneous cooperation and competition between businesses yields several benefits. The main one is that every competitor and the customer gains from the relationship.
Fostering coopetition can allow organizations to do the following:
- Share strengths. Companies can combine their unique advantages and complementary strengths so that each can benefit while remaining in competition with each other. This allows them to create a more complete product together.
- Distribute the workload. Coopetitors can grow their business network and merge their workforces to take on projects that are too big for one company.
- Team up against larger competitors. Smaller companies, especially technology startups, may be in competition with each other and a larger, well-established company. Cooperating can allow the smaller companies to rival the larger one.
- Improve market performance. Competitors can work together to penetrate new markets or develop existing ones. Developing existing markets means providing a better product or service to customers a company already has. Market penetration means tapping into new markets through collaboration with competitors in target markets.
- Foster technological innovation. Competitors working together drive innovation. Each company involved in the relationship can add what they learn from the collaboration to their own products or services.
- Establish industry standards. Competitors in the same industry can share data and drive adoption of a given technology. Doing this can help develop standards and requirements that help the industry without jeopardizing a company's intellectual property or core competency.
Drawbacks of coopetition
Competing and cooperating simultaneously with industry peers can also have its setbacks. Some of these include the following:
- Power imbalances. One member of the relationship may gain a disproportionate amount of power over the other participants, which could overshadow the cooperative nature of the relationship. Amazon's relationship with sellers on its Marketplace is a potential example of this. The advantages Amazon is getting from all the partnerships with smaller sellers is making it a stronger, more dominant competitor.
- Lack of trust. Companies in this type of relationship may not trust each other with trade secrets, leading to a situation where nobody is willing to take risks or share information of value.
- Workload distribution. Companies may have different ways of working. Trying to merge those approaches can lead to inefficiencies and logistical problems.
- Lack of competitive advantage. If companies cooperate too much, duplicate efforts and share their "secret sauce" -- what makes them special -- they will erase what differentiates them in a competitive market.
- Antitrust issues. Businesses must take care not to cross the line between coopetition and collusion, such as price fixing. Coopetition can face legal questions if it isn't in some way benefiting consumers. Such benefits can include lower prices, better access to products, more product or improved products.
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