Co-opetition

Adam Brandenburger and Barry Nalebuff

Limitations of the Hypercompetition Perspective

Ignores the point that competition and co-operation can coexist. Examples include the development of Advanced Photo Film, DVD, etc. Sometimes it may be in the best interests of players not to jump to the next level of dynamic competitive interaction but into co-operative competition - coopetition This requires figuring out the situation the firm is facing and then looking at the firms valuenet

What game is being played?

Questions to ask yourself are: Who are the key players? duopoly game; oligopoly game; etc What options are open to the players? pricing game; advertising game; etc. What goals are the players pursuing market share? profits?.. Are goals complementary or conflicting? issues the players agree on, sources of conflict, etc.. What is the time structure of the game? one shot, repeated, simultaneous, sequential, etc.. What is the information structure of the game? information as a source of bargaining strength

How are you doing in the game?

If you find yourself in a bad box what do you do? Play the existing game better Try to get a good outcome for yourself Change the game Seek answers outside the box

The ValueNet

Customers

Substitutors

Company

Complementors

Suppliers

Complementor
A player is a complementor if customers value your product more when they have the other players product than when they have your product alone.
Oscar Mayer and Colemans

A player is a competitor if customers value your product less when they have the other players product than when they have your product alone.
Pepsi and Coke

Who are the complementors?

Cars Televisions TV shows Fax machines Catalogs Hardware Auto loans, insurance, roads VCRs TV guide Phone lines Delivery services Software

Valuenet for American Airlines

American, United & Mesa are suppliers Customers Short Haul (NEW) Long Haul British Airways, Iberia Car Rentals

Mesa Air, United

American

Boeing Pilots Association Bombardier Airbus

Substitutors/ Complementors

Intel - A Partial ValueNet

Limit customer power & competitor response via Motherboard manufacture

IBM manufactures AMD Customers limit dependence - alternative suppliers

HP; Compaq; IBM Microsoft HP (Merced) Sun (Solaris + Merced) Compaq (Digital TV standards with MSoft)

NatSem / Cyrix AMD / IBM Microsoft

Digital CableTV Standards NetPC Standards Solaris Compatibility of NetPC design & Merced

INTEL

Suppliers
Limits Microsoft power in ValueNet

Real Networks - ValueNet

How can Real Networks enhance Added Value ? Boeing, Mercedes, Kodak, Lockheed, News Media

Vxtreme NetShow (Microsoft)

Real Networks

Microsoft Sun

Suppliers
Microsoft has 10% stake in RN Sells competing products RN has a deal to optimize RA for Solaris

How can the game be changed?

The game can be changed by changing Players Added value Rules of the game Tactics employed Scope of the game

Changing the players

Bring in customers - Increase industry demand. This helps competitors, but may be worthwhile for you. To do this Educate consumers about your product (Diapers in Japan;Whitening tpaste) Pay customers (esp. early adopters) to play (Samples, Netscape) Subsidize some customers, other full paying customers will follow (Initial discount to lower risk) Become your own customer (Soaps and cottonseed oil / Cyrix PC) Be Inc. & the WWW Bring in suppliers Holland Sweetener Co. and Coca-Cola Compaq / AMD / Intel Bring in complementors Do it yourself. Nintendo - both h/w & s/w. Intel Pay complementors to play (at least initially) Be Inc. & IBM / Motorola / PowerComputing Bring in competitors License technology to make money, avoid complacency Create a second source to encourage buyers to adopt technology

Changing the added value

Your value added = Size of the pie when you are in the game - Size of the pie when you are not in the game. How to increase added value? Limit your supply DeBeers and diamonds; Nintendo & video games; Beanie babies Downside: Shrinks the pie today; Leaves entry opportunity open Raise amount consumers are willing to pay Policies that build loyalty (frequent flier miles) increase willingness to pay GM / Ford credit cards; Intuit Lower competitors value Softsoap - by cornering the supply of pumps Questions to ask: What is your added value? How can you increase value by changing supply, buyers, suppliers, complementors, or substitutors in your value net? What is the value added by other players? Should you be increasing or decreasing their added values?

Changing the rules

Questions to ask are: Which rules are helping you? Which ones are hurting you? Rules can be for pricing, advertising, product variety, satisfaction, etc. What kinds of contracts are you willing to write with your buyers and suppliers? Do you want Match Competition Clauses? What does this do for you? Do you have the power to change the rules? Does someone else have the power to overturn them? Can you signal your commitment credibly (Kiwi Air)

Changing tactics
Questions to ask are: How do other players perceive the game? How do these perceptions affect the play of the game? (NY Post vs. Daily News) Which perception do you want to keep, which to change? Do you want the game to be transparent or opaque (fee negotiation between investment banker and firm - guarantee / % fee)? When do you want to send signals that benefit you? When do you want to preserve the fog? To establish credibility (clear the fog) Accept a pay-for-performance contract Offer guarantees or advertise Ask others to demonstrate their credibility to you To preserve the fog Create complexity (long distance calling rates) Bluff: Ask yourself whether you will be believed and under what circumstances Ask what others stand to gain by preserving the fog, and what they could be bluffing about

Changing tactics
Competitive stances that can be used to clear / add to the fog Appear Tough Appear Soft

Being Big

Top Dog

Fat Cat

Being Small

Lean & Hungry

Puppy Dog

Changing the scope

Questions to ask are: What is the current scope of the game? Do you want to change it? Games are linked over time and across markets (geographic and product markets) Do you want to link the current game to other games? When multi-market contact could be beneficial Do you want to delink the current game from other games?