Co-Opetition - Adam M. Brandenburger [22]
Julius Caesar: Let me have men about me that are fat.
—Shakespeare, Julius Caesar
Fine, but it’s still a bad idea to turn your back. We are fully aware that your competitors may be all too happy to eat your lunch if you let them. Our recipe for strategy isn’t about giving your competitors a free lunch—your lunch. We don’t propose that you simply act nice, hoping that others will reciprocate. All too often that’s a lose-win recipe.22 We have something else in mind: a smarter way to compete that doesn’t rely on the goodwill of others.
Your relationship with competitors is prima facie competitive, or win-lose. You lose when they enter the game; But you don’t have to lose as much if you recognize that, once competitors enter the game, you can have win-win interactions with them. It’s not all war with competitors. It’s war and peace.
The same is true in all four directions. Whether it be customer, supplier, complementor, or competitor, no one can be cast purely as friend or foe. There is a duality in every relationship—the simultaneous elements of win-win and win-lose. Peace and war.
Friend and Foe
There are both win-win and win-lose elements in relationships with
• customers
• suppliers
• complementors
• competitors
At this point, we have a map (the Value Net) and a mindset (co-opetition) for thinking about the game of business. We’ve seen some examples of how companies have changed the game, such as Ford and Ford Motor Credit, and Intel and ProShare, and hinted at many more examples to come. But we don’t yet have a systematic method for how to change the game. To develop a method, we turn to game theory. That’s the subject of the next chapter.
3. Game Theory
Life is the game that must be played.
—Edwin Robinson, poet (1869–1935)
How much can you hope to get in a game? As we’ll see, the answer doesn’t depend just on the size of the pie to be divided, or notions of fairness. Nor does it depend just on how well you play. What you get depends on your power in the game as well as on the power of others who have competing claims on the pie. Power—yours and others’—is determined by the structure of the game. Game theory shows how to quantify this power.
Game theory began as a branch of applied mathematics. It could be called the science of strategy.1 It analyzes situations in which people’s fortunes are interdependent. Game theory provides a systematic way to develop strategies when one person’s fate depends on what other people do.
Game theory sounds tailor-made for the analysis of business strategy. But, historically, there’s been an obstacle preventing the world of business from embracing game theory. The problem is that academics and businesspeople speak two different languages: equations versus experience. Many businesspeople have heard of game theory and suspect that it’s a potentially powerful tool. But all the mathematics can be baffling and stops people from connecting the theory to practice. At the same time, game theorists are often unfamiliar with business practice, and some of their theories don’t capture reality. Our experiences in teaching, research, and consulting suggest that communication between the worlds of game theory and business practice is both possible and valuable. This book brings theory and practice together.
In this chapter, we explain the fundamental ideas of game theory. In the rest of the book, we’ll focus on the application of game theory to business strategy. Here, we’re laying the foundations, trying to develop a new way of thinking. To do that, we use some deliberately simple and stylized games designed to illustrate the basic concepts of game theory. We’ve left out the mathematics, but the reasoning still requires close attention. If you, the reader, invest some time in this chapter, we promise you a big payoff in the