BUSINESS: The Ultimate Resource

September 2003 Upgrade 12

MANAGEMENT LIBRARY
Co-opetition
by Barry J. Nalebuff and Adam M. Brandenburger

Why Read It?

The authors claim that this is the first book to adapt game theory to business strategy. Combining cooperation with competition to produce co-opetition is, they claim, an innovative business strategy that will give companies a winning advantage. It is a technique for making the right strategic business decisions in complicated business situations.

Getting Started
The authors explain why game theory provides a valid basis for thinking about business. The theory states that nothing is static; markets are dynamic and evolutionary. Companies can create new models or take on different roles to succeed. Nothing is taken as given. According to the authors, players in the game of business can change the rules to succeed. Co-opetition uses game theory to show how companies who cooperate can influence each others success. Software, for example, becomes more valuable when a complementary company produces more powerful computers. Co-opetition strengthens the interdependence between companies.

Contribution
1. The Game of Business Nalebuff and Brandenburger believe that co-opetition depends on complementary activities. When products stimulate demand for complementary products, companies should cooperate. They show how the game of business includes customers, suppliers, competitors, and complementors. These organizations form part of a value net with integral dependencies. The value net expands the concept of a companys customers. By taking a multiple perspective, they argue, companies can redefine the role of a customer in a value net. The authors explain how film companies initially saw video as a threat to their business. Now, they recognize video as complementary to film distribution. Similarly, computers did not create a paperless office, they made it easier to create paper. 2. The Importance of Added Value

Bloomsbury Publishing Plc 2003

BUSINESS: The Ultimate Resource

September 2003 Upgrade 12

To succeed in a game, companies must be able to offer added value. However, say the authors, this must represent what a customer or competitor regards as valuable. If the value is not sufficient, the company can change the game by playing a different role or changing the rules. Perception therefore plays an important part in co-opetition; recognizing what other people believe is important. Companies must recognize the boundaries of their business. According to the authors, companies operating in a lower segment can easily harm their core business by attempting to move into a higher segment. 3. Changing the Rules The authors suggest a number of ways to change the rules. A company entering a monopoly market may create competition, but if the incumbent has strong brand values, the new entrant may not gain sales. In those circumstances they recommend getting paid to play. The new entrant should gain some benefit from entering a market, rather than just acting as a makeweight competitor. The authors suggest that a company needing sales of complementary products to boost its own sales can influence a market by negotiating favorable prices for its own customers. As the authors point out, a dominant supplier can exercise a monopoly position: limiting development and supplies to keep customers and suppliers hungry strengthens its own position. 4. Changing the Game Nalebuff and Brandenburger recommend an action plan for bringing about change:

look at your own value net; identify opportunities for cooperation and competition; change the players; identify the implications if the players change; identify added value; see how you can add further value; identify the other players added value; see which roles are hindering or helping you; identify roles you would like to adopt; work out whether you can change the rules; work out how other players perceive the game.

Bloomsbury Publishing Plc 2003

BUSINESS: The Ultimate Resource

September 2003 Upgrade 12

Context
Game theory began in the 1950s with the publication of the book Theory of Games and Economic Behavior by Neumann and Morgenstern. Their theories were applied to economics, military strategy, computer science, and evolutionary biology. Game theory has been used more widely in business since the 1990s. Co-opetition is the first book to use game theory to demonstrate business strategy. Its publication is timely as industry commentators from leading companies believe that the idea of complementary business is still not widely understood.

For More Information

Nalebuff, Barry J., and Adam M. Brandenburger. Co-opetition. New York: HarperCollins Business, 1996.

Bloomsbury Publishing Plc 2003